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My theory about forex market

  • #41
  • Mar 29, 2012 5:27pm Mar 29, 2012 5:27pm
Quoting Custos
... I sometimes wonder if this was the same with the turtle system, it used to work for such a long time but then suddenly only gave out random signals. Maybe it had an extraordinary long lucky streak.
I think the fundamental structure of the market changed – technical systems work, but only under certain macro-economic conditions. The way EUR.USD behaves today, will not be applicable when European crisis ends, the macro fundamental regime will change and with it the behavior of asset prices. Turtle systems were developed in the area of high inflation, oil embargo, attempts of government to control commodity prices and self – reinforcing feedback loops. Once the macro forces above were gone, so was the price action that worked in that environment and Turtles who did not adapt were toast.
I think fundamental analysis is important, but not in a classical way as being used on Wall Street or taught in business schools / CFA curricula, which attempts to link changes in fundamentals to asset prices in a linear fashion.
The key question is to asses fundamental macro situation (are we in crisis? recovering from one? goldilocks period? high inflation etc .) and then pick the correct technical system to trade while macro environment persists. When macro picture changes, one has to be able and willing to change the technical method.
  • #42
  • Mar 29, 2012 5:36pm Mar 29, 2012 5:36pm
Quoting AndromedaFX
[size=3][font=Calibri]I think the fundamental structure of the market changed – technical systems work, but only under certain macro-economic conditions. The way EUR.USD behaves today, will not be applicable when European crisis ends, the macro fundamental regime will change and with it the behavior of asset prices. Turtle systems were developed in the area of high inflation, oil embargo, attempts of government to control commodity prices and self – reinforcing feedback loops. Once the macro forces above were gone, so was the price action that worked...
i see you are one intelligent man, i am curious on your background.
i tend to agree with you

fundamental macro economic environment is precisely that, an environment in which the aggregate economy will continue to respond to the environment in which it operates.

It does not have a linear strong correlation coefficient with the asset price in question due to volatility and humans which execute the orders, however ass whole it is conductive to a persistent condition in the orders executed.
AVT INVENIAM VIAM AVT FACIAM
  • #43
  • Mar 29, 2012 5:38pm Mar 29, 2012 5:38pm
to add to that a system based on Technical Analysis devised to exploit a certain condition will inevitably go bust once the market no longer favors that inefficiency.
AVT INVENIAM VIAM AVT FACIAM
  • #44
  • Mar 29, 2012 6:02pm Mar 29, 2012 6:02pm
Quoting jamb0
My theory about forex is that nothing works here, why?

... it is a completely random market, there are no methods, there are no systems, you can only minimize your losses using SLs and hope that when you have luck the price reaches your TP, that's all, this is the reality IMHO.

What do you think?

PS: sorry for my bad english...
VERY wrong!!



The market is NOT random; price is determined by buying and selling pressure which is from...

  1. fundamentals (news items)... traders influenced by political decision, interest rate changes, employment numbers etc.
  2. technicals (chartists)... sheer weight of numbers from traders using fibonnaci's, pivots, moving averages etc. Many traders are using automatic stops and entries based on fibs and pivots, thereby causing reversals thru sheer weight of numbers.

There is ONLY one true method of analyzing the market correctly and that's by using bare charts and candles... I suggest you learn to read price action and trade off daily charts ONLY.

Learn to recognise a single candle setup and only trade that. A good place to start is the reversal/rejection candle, commonly named a hammer/shooting star/pinbar etc. Combine this setup candle with support and resistance lines... you don't need anything else on your charts. Trade only with the trend.

When you can recognise the setup and use it with a good risk to reward ratio, you will find yourself taking only a few trades a month with way over 50% successful trades, and if your risk/reward is at least 2:1 you can double your account every year. Compare that to getting 5 - 10% a year in an investment/hedge fund and you can see that Forex is hands down the simplest and best investment opportunity in the world.

Learn one or two more setups and the sky is the limit. Personally I average near 20% increase a month (and my target is only 5%)... and thats on an average of just 4 trades a month.

(you need control of your greed and fear of losing also... there's no place for emotion in trading)

In the days of old when sailors were bold, and seldom if ever contented.
  • #45
  • Mar 29, 2012 6:40pm Mar 29, 2012 6:40pm
So you are saying the casino has a built in edge from the start, which is irrelevant of the outcomes of the game, which in turn will be random and thus equal each other out?

Well, that's an edge is it not? So if technicals provide a statistical edge over time, then that is by its very definition not random.
Also, price action is not random so long as a large number of traders trade based upon the same technicals.
?

Quoting Custos
you seem to confuse system with the underlying structure it seeks to exploit.
The casino games have a built in system, that exploits the underlying random structure of throwing dices or throwing a ball or whatever.
For example roulette. Let's say we just bet on red or black. The game itself is totally random. The only thing that makes the casino win in the long-term is the zero and double zero (green). That puts the odds into the casino's favor. The underlying game / outcome is random, while the built in system in the game makes the casino win over...
  • #46
  • Mar 29, 2012 7:28pm Mar 29, 2012 7:28pm
yes that is what he said...but NO you are miss understanding.

price action is not random i agree with you, but is not the technicals that make it non random....in fact a chart is just a chart.

what i mean by that is that a chart OFFERS NO EDGE, it is a statistical representation of the orders that are transacted (via supply and demand and liquidity) you get the different quotes of price at any given time... so in fact every single tick or price quote is actually fair market value of that one second including selling and buying as well as information available.....however the economic environment that causes those orders to take place is what makes the market non random.

Also when looking at a statistical representation of any random variable in fact there are some extrapolations that can be made from them. in simple terms if you look at a chart and determine or observe equilibrium average traded price, clustering of orders and normal deviations as well as outliers........there is where you get your edge BUT WITHIN THE CURRENT ECONOMIC CONDITION.

in fact the casino has Money Management Edge as the probability expectations are positive.... here is an example.

suppose I roll 3 dice if you get a 6 on any given die you win and if you don't get a six on any of the dice I win. -

now lets look at the probability of you or anyone beating me at the game over a large sample space

the probability of you getting a six is P(A)=(1/6)c which is 1-(5/6)^3 =42.12% so in fact out of 100 people that play this game i have 57.87% that would be the house edge, so i have 15.75% probability expectation.

let's take a binary option broker for example as it is easier to calculate than a spot

your payout is 85% of your premium that inherently gives the house an edge.
but now we are getting into money management and risk management....you see it is all interwoven.
AVT INVENIAM VIAM AVT FACIAM
  • #47
  • Mar 29, 2012 9:51pm Mar 29, 2012 9:51pm
Hmm, I guess one thing is for sure though: What makes price aciton non random at the end of the day is simply that people dont behave randomly, it's super-obvious I think.

But on another note, say when there is a trend price tends to move back to an ma and then bounce from there. That is not random, that is a lot of traders entering there based upon THEIR wish to make money, which has zero to do with the economic condition.



Quoting the redlion
yes that is what he said...but NO you are miss understanding.

price action is not random i agree with you, but is not the technicals that make it non random....in fact a chart is just a chart.

what i mean by that is that a chart OFFERS NO EDGE, it is a statistical representation of the orders that are transacted (via supply and demand and liquidity) you get the different quotes of price at any given time... so in fact every single tick or price quote is actually fair market value of that one second including selling and buying as well as information...
  • #48
  • Mar 29, 2012 9:54pm Mar 29, 2012 9:54pm
how do you calculate a Moving Average?
AVT INVENIAM VIAM AVT FACIAM
  • #49
  • Mar 29, 2012 10:06pm Mar 29, 2012 10:06pm
Quoting the redlion
how do you calculate a Moving Average?
try adding up the total closing prices for the last 10 days and dividing the total by 10... that gives you the currenct value for a MA10
In the days of old when sailors were bold, and seldom if ever contented.
  • #50
  • Mar 29, 2012 10:15pm Mar 29, 2012 10:15pm
Quoting pt49
try adding up the total closing prices for the last 10 days and dividing the total by 10... that gives you the currenct value for a MA10
exactly...

the idea that traders look at an MA and when it hits it they enter...perhaps for some traders that is true.

but the Average will always average the last x amount of periods meaning that the average price is relative to the current price, so are you sure you are not seeing the average move towards the price as opposed to the price towards the average?

reversion? or new average?
AVT INVENIAM VIAM AVT FACIAM
  • #51
  • Mar 29, 2012 10:22pm Mar 29, 2012 10:22pm
How can anyone say that fx market price action is random?

What is the market? It's a crowd of people. They decide what the price is. Why do they buy or sell, could be any reason, maybe the weather is good, maybe they believe in technicals or what some person on tv says, whatever..
How could that possibly be, of all things, random? Doesn't make any sense, at all.
  • #52
  • Mar 29, 2012 10:42pm Mar 29, 2012 10:42pm
Quoting the redlion
i see you are one intelligent man, i am curious on your background.
i tend to agree with you
Thanks. I work in corporate Treasury for a multinational corp - hedging of FX, commodities, interest rate risks, also in charge of capital structure - equity and debt issuance. I started trading Forex with a very small account short time ago to get comfortable and prove to myself that retail trader can beat the market and generate superior returns. My experience is detailed in my blog, and my account is linked to Myfxbook. BTW, blog is not commercial - I do it purely for enjoyment.
  • #53
  • Mar 29, 2012 10:46pm Mar 29, 2012 10:46pm
Quoting pt49
VERY wrong!!



The market is NOT random; price is determined by buying and selling pressure which is from...

  1. fundamentals (news items)... traders influenced by political decision, interest rate changes, employment numbers etc.
  2. technicals (chartists)... sheer weight of numbers from traders using fibonnaci's, pivots, moving averages etc. Many traders are using automatic stops and entries based on fibs and pivots, thereby causing reversals thru sheer weight of numbers.

I want to add one more bullet - feedback loops. Very important phenomena in the market place.
  • #54
  • Mar 29, 2012 10:58pm Mar 29, 2012 10:58pm
Quoting Pipanator
I used to think that way it was all random and some pros even advise it that you lose most of the time utter bullshit.

The market has order just like everything else in life key is find the order and use skill to execute it.

Look how many M and W's there are every single day all pairs in all timeframes!
BAM!!! When I first entered this market, the one thing that stuck out like an eye soar was the letter W . Now I'm on my way to exploit, profit, learn from it. For example, this morning, when the EUR fell during London, I woke up in the U.S. right when it reached 1.3272, and the high before the fall was at 1.3340. Then I took those two numbers and added them up then divided it by two. That number gave me my TP. So I entered long and took profit at 50% of the downfall for 26 pips. Mathematics works.
Time turns trend. - W.D. Gann
  • #55
  • Mar 29, 2012 11:53pm Mar 29, 2012 11:53pm
Quoting dice action
So you are saying the casino has a built in edge from the start, which is irrelevant of the outcomes of the game, which in turn will be random and thus equal each other out?

Well, that's an edge is it not? So if technicals provide a statistical edge over time, then that is by its very definition not random.
Also, price action is not random so long as a large number of traders trade based upon the same technicals.
?
maybe we misunderstood each other.
I thought you think that the market itself has an edge. Only systems can have an edge. The market is just the market. Systems with an edge exploit the behavior of the market.
  • #56
  • Mar 29, 2012 11:56pm Mar 29, 2012 11:56pm
Quoting AndromedaFX
[size=3][font=Calibri]I think the fundamental structure of the market changed – technical systems work, but only under certain macro-economic conditions. The way EUR.USD behaves today, will not be applicable when European crisis ends, the macro fundamental regime will change and with it the behavior of asset prices. Turtle systems were developed in the area of high inflation, oil embargo, attempts of government to control commodity prices and self – reinforcing feedback loops. Once the macro forces above were gone, so was the price action that worked...
interesting thought. Something I still have to research. Thanks for that post.
  • #57
  • Mar 30, 2012 4:34am Mar 30, 2012 4:34am
If dice action is random, the price action will be random. But if dice action was random I would no longer be dice action, thus price action cannot be random!
\
  • #58
  • Mar 30, 2012 6:47pm Mar 30, 2012 6:47pm
Quoting pt49
VERY wrong!!



The market is NOT random; price is determined by buying and selling pressure which is from...

  1. fundamentals (news items)... traders influenced by political decision, interest rate changes, employment numbers etc.
  2. technicals (chartists)... sheer weight of numbers from traders using fibonnaci's, pivots, moving averages etc. Many traders are using automatic stops and entries based on fibs and pivots, thereby causing reversals thru sheer weight of numbers.

There is ONLY one true method of analyzing the market correctly...

Hi pt49

I note with great interest on what you say above, and your thread from many moons ago.....

http://www.forexfactory.com/showthread.php?t=175346

I would be very interested to find out more about your trading style and management style if you would care to disclose further.

Pete
“A setback is a setup for a comeback.”
  • #59
  • Apr 1, 2012 2:10am Apr 1, 2012 2:10am
Quoting marshy
Hi pt49

I note with great interest on what you say above, and your thread from many moons ago.....

http://www.forexfactory.com/showthread.php?t=175346

I would be very interested to find out more about your trading style and management style if you would care to disclose further.

Pete
What I taught in that thread is just as valid today as it was back then... tho markets are not currently trending. A patient trader can be very profitable with just one simple setup like that.

Unfortunately almost all traders are greedy and impatient, they crave the action, so they refuse to learn to trade off daily charts. Sadly their mental attitude keeps them in the poorhouse.

My trading and management philosophy is to ONLY trade daily chart setups, wait for the trades to come to me, and only take trades that are going to return AT LEAST 2:1 profit to risk (but preferably 3:1 or more).

3 to 5 trades a month is more than enough to double an account balance in less than 12 months.
In the days of old when sailors were bold, and seldom if ever contented.
  • #60
  • Apr 1, 2012 4:32am Apr 1, 2012 4:32am
Quoting pt49
What I taught in that thread is just as valid today as it was back then... tho markets are not currently trending. A patient trader can be very profitable with just one simple setup like that.

Unfortunately almost all traders are greedy and impatient, they crave the action, so they refuse to learn to trade off daily charts. Sadly their mental attitude keeps them in the poorhouse.

My trading and management philosophy is to ONLY trade daily chart setups, wait for the trades to come to me, and only take trades that are going to return AT LEAST...
Thanks for the reply pt49.

I trade from the daily chart time frame and look for simple setups between support and resistance, but have only just recently cleared the clutter from my charts and now concentrate on candle formations.

Pete.
“A setback is a setup for a comeback.”
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