Broker to Trading

Forex vs Crypto: Trends, Randomness and the Appearance of Market Correlation

2026-02-19T11:24:00.000-05:00

Correlations in Crypto vs Forex Markets - Pink to White Noise

Pink noise is a concept taken from physics which refers to a type of noise which has correlations which fade over time. White noise is purely random noise, which does not have correlations (but may also seem to have correlations). Financial markets are noisy and seemingly random; there are factors that can produce correlations, such as traders coalescing on trends or reacting to market news. Though even here the tendency is for correlations to break up, as traders short a trend or take profit, for example, or react to news changes.

Both the Forex market and the crypto market are subject to random noise, and both are hard to trade. From a trading perspective, they can seem like quite different markets. Forex tends to have complex variations on patterns on longer to shorter time frames. Its volatility can ebb and flow, and it may be reactive to data inputs into the market (news releases). Indeed, the trading methodology of news trading is dedicated to predicting the directional effect of these inputs.

Forex can be a very difficult market to trade as its directionality can change and, even if directional, can show complex retracements and moves opposite to the traded direction. Forex, however, tends to be traded on an assumption of persistence in the market, the presence of pink noise, which will take a trade where it is intended, through the volatility.

Pink noise is not about predictability; it implies statistical memory (which is why it seems like something to follow, but can often be a will-o'-the-wisp). Past movements influence future variance, but do not determine direction. This is an important distinction that tends to get conflated in the complexity of the market. The Forex market can seem more like white noise with appearances of pink noise, which gets broken up. This might be seen as a reason why some traders use robots or very strict self-trading strategies, as these may take them through the noise into the desired outcome, or at least do so on average over multiple robotic trades.

The crypto market is less liquid, although becoming very large, and has been around for a lot less time than the Forex market. Both are traded electronically, and each is open for 24 hours, with the difference that the Forex market stops on Friday evening and opens again on Sunday evening GMT, while the crypto market is fully open at weekends, 24/7. It might be said that the crypto market is evolving, as this market, unlike Forex, is only recently being entered by large institutional players, as well as being new, i.e., it is still in a formation phase.

Forex does not have central exchanges; it is a market that ripples down from huge transactions made by banks based around currency exchange. Crypto most certainly does have central exchanges; it also has decentralised exchange trading via DEXs. To some extent, crypto is bottom up, from smaller traders, enthusiasts, though now increasingly larger players and more mainstream entrants. The top down may be seen as market highs which are shorted by larger players, for example, but smaller players can drive the exuberance which can characterise this market, as well as its crashes.

When trading, Forex traders may have a feeling of being on the sidelines watching vast money flows, which they try to hop on and off. Crypto is more like a flattened market, which many traders and participants may choose to stay out of. Forex has the capacity to be tradable around the clock and throughout the year (apart from weekends). However, crypto has so far shown bear/bull phases. In the bear phases, volatility can be very low, with changes of a few percentage points in valuation over a day, back and forth, as well as drops and occasional news-driven surges. In a crypto bull market, the market is typically driven initially (and ended by) one crypto, namely Bitcoin, so the phases of the entire market follow one crypto. This is not normally the case in Forex as the market has a complexity in direction but may, however, be pulled by USD, for example, by changes in Fed Funds interest rates, since it is a component of the highly liquid major pairs.

Within the overall direction given to the market by Bitcoin, cryptos can then show surges and ebbs, but potentially with a directional move up. This is what may attract people into this market, as smaller coins might show remarkable growth, but also with the tendency to crash even in a Bitcoin bull market, potentially down to zero or close to it. Cryptos can be seen as being linked to their underlying projects from a fundamental analysis perspective, but some have no utility, and these coins can demonstrate rapid changes in growth and also rapid reversals. The smaller a coin is in terms of market cap, the more opaque it can be; thus, sentiment may primarily drive movement in these coins, and altcoins in general.

Both Forex and the crypto market are analysed by technical analysis, via indicators that capture past trading patterns and have signs of their appearance and disappearance. Fundamental analysis, a mainstay of stock analysis, is a complex issue in and of itself for crypto and Forex. Both markets may be analysed using fundamentals. For example, Bitcoin is a fundamental reference for volatility and potentially direction in the crypto market. For coins with underlying projects, news trading on announcements and milestones, and potential, as well as setbacks does certainly happen. Additionally, negative events from outside the market but referenced to the market can have a huge impact on crypto.

Forex can be and is analysed using fundamentals, but its tendency towards white noise makes for uncertainty in this analysis. So traders try to narrow things down by news trading. That is, trading on a specific data release at a given time. However, all who trade the news recognize that even in this window, unanticipated outcomes can happen.

Traders try to narrow down the reactions themselves by looking for surprises. The nature of a surprise is that it is unexpected. However, in the event of a surprise, the market may react with a significant directional move. But it may not, and even if it does, it might quickly reverse or oscillate backwards. News or other events propelling a crypto might show surges that look like they are going on forever, but which rapidly peak and then crash down with a potentially extended time of low volatility and downward drift.

One issue with crypto is that news events may be more hidden, so a trader sees a crypto move and just trades into it. However, the danger of getting on the wrong side of a volatile top is a very real peril in crypto (as it is also in Forex). So these correlations can be likened to pink noise, which gets broken up into white noise, with random drift and low volatility. Forex seems more stable, but that may be because it is a market that can go up and down, rather than having a preferred direction. That is, up or down does not have the same conceptual sense as it does in crypto. However, this can also contribute to a fading into white noise as the randomness on smaller time frames dissipates order on higher time frames.

Shorting Forex is part and parcel of trading it, while shorting crypto is arguably not, at least in the same way. Those shorting crypto may tend to be larger traders who can deal with the enormous risk inherent in the volatile market, which does indeed have a 'preferred' direction (when the market changes against shorts, vast liquidations can happen via margin calls). So traders trade into white noise in Forex, but don't tend to in crypto. Traders do, however, tend to favour pink noise correlations in both markets as they can be analysed. Short traders may trade on technical signals, in the absence of fundamentals, so trades are being made on the basis of past trading patterns, which may not happen.

The up or down pattern-driven nature of Forex contributes to its self-similarities as one moves up or down time frames. One can look for correlations by seeking intersections of events across time frames, via multi-time frame analysis. But the way that Bitcoin acts as the fundamental reference to crypto makes for the appearance of correlations that cut through time frames, in the way a news trade event can directionally surge across all time frames in Forex.

Does mobile trading have advantages for traders?

2025-04-13T11:13:00.002-04:00

For those who started trading on desktop computers and laptops before smartphones, mobile trading, when it appeared, seemed finicky and more like a way to monitor trades. However, as smartphones have advanced, mobile trading has become more than a way to check trades on the go. So, is mobile trading now suitable or advantageous for some styles of trading, or is it still more of a way to check trades?

The most important thing for trading, and the central part of a platform, is the chart. This is where the problem was, at least partly, and where it is being solved. Modern smartphones have high-definition screens, powerful processors, and wide screens that can effectively present a chart as a smaller version of the type of chart used on a desktop, at least in terms of the chart's price representation, like candlestick charts. Modern smartphones can also help stretch the area for the chart with curved edges.

Mobile phones do not typically support automated trading. However, mobile phones do support discretionary trading, but this covers a wide field of types of trading. Arguably, mobile trading is not ideal for day trading, as the trader may want extra space and processing power to effectively perform technical analysis and access fundamental information (hence the classic multi-screen trader's setup). But is all this space necessary for self-directed (non-automated) trading, or is it just there to give a gaming setup feel of raw power?

Modern smartphones can be extremely powerful, comparable in some respects to laptops 5-10 years ago. The tech that does not scale in this way is the GPU, hence why there is an argument for a desktop or a gaming laptop for tasks requiring multitasking on visual tasks, such as charting analysis, perhaps on multiple desktop screens. But the space is there to an extent as well as the visual clarity and detail from advanced high-definition screens (e.g., OLED and AMOLED).

So, what kind of trading is suited to tech? Let's reverse engineer it. Looking at the strengths of mobile, we see that it is good for charts, but space limitations make for multiple overlays of indicators and tools potentially problematic and more suited to a larger screen. So we are looking at trading that seeks to capitalize on very clear charts but without too much extra detail.

This leaves as possible candidates candlestick analysis and analysis based on visual support and resistance layers, as well as, but to a lesser extent due to lack of space, trading based on value levels. However, the experienced trader may be familiar enough with support/resistance level behaviour, including how the market tends to trace out patterns around significant value levels, so that they can overcome representational issues from the smaller screen.

Let's unpack the advantages of mobile trading further. It allows the trader to use multi-time frame analysis. A nice, clear screen and a good platform allow the trader to check the chart at multiple time frames, thus allowing the trader to get a sense of competing and complementing resistance levels as well as changes in direction and momentum.

Multi-time frame analysis is a way to screen trades and thus help make decisions based on entry, management, and exit. Thus, a mobile can give a heads-up to the trader, but one that may need further consideration on a laptop or desktop. However, this may be the one true strength of a mobile in terms of facilitating trading. It can be helpful that the chart flips to landscape to make use of the extra space this view provides.

Can a mobile provide a way to help focus on trades as well? It is the nature of a mobile that commands focus in a way that a laptop or desktop does not. Indeed, the very nature of a larger screen is to allow for multi-tasking distractions. However, the effort needed to take in a smaller screen as well as the need to hold it (typically) allows for a depth of focus on the screen. So when looking at the chart, the user's focus is required. This may help create a more detailed approach to analyzing a chart, even though the chart itself may not be as expansive as the laptop or desktop equivalent. While mobile might be criticized for being too commanding of focus, in the case of trading, this might be an advantage.

Multiverse Arbitrage: Differences within the Similar

2024-11-24T11:15:00.004-05:00

Multiverse Arbitrage: Differences within the Similar

TL;DR: Speculative thoughts about arbitrage across the multiverse

The universe may not be alone, in the sense that it might be one of many universes in a multiverse. One feature that multiverse concepts entertain is that it may be that there are universes very similar to our own. Arbitrage works by exploiting small differences in value across markets. So could a hypothetical multiverse arbitrageur do something similar?

Arbitrage is a method used in trading to exploit differences in the valuation in different markets. Let's imagine a future world where traders can communicate with other traders across a multiverse of universes. What would multiverse arbitrage be like? This article will consider this question from a scientific perspective (though the physics is itself speculative), but bear in mind that nothing like this exists or is likely to exist for a long time, if ever.

Arbitrage is predicated on the same underlying markets being valued in different contexts. For example, CFD prices are based on the underlying market but can diverge. Arbitrageurs bring prices back into alignment by making a profit on that difference. So a multiverse arbitrage would need two-way communication, firstly to inform traders in different universes that there is a price difference and then to allow them to make trades to bring them back into alignment.

The multiverse

The multiverse is a speculative concept suggesting that the universe as we know it might be one of many universes. Two approaches to a multiverse will be lightly considered in this article. Firstly, the Many-Worlds Interpretation (MWI) suggests that there is a single, universal wavefunction that does not collapse. Rather, every quantum event leads to a branching of reality into different outcomes, each representing a version of that universe where that particular result happens. Secondly, the Brane-World Scenario (BWS) suggests that the universe exists in a higher-dimensional space that contains other universes, potentially in very large numbers.

Conditions for arbitrage

To arbitrage across the multiverse, one would need universes with very similar states. The MWI and the BWS allow this but in different ways. For the MWI, at the moment of branching, the universe will be identical to the current universe but will start to diverge from there. For the BWS, a near-identical universe to a given universe at a moment in time is possible but may be separated by enormous distances.

To be aware of an arbitrage differential, one needs to communicate signals. There is no known way to send a signal across the multiverse, no matter what the framework. However, we have to assume an advanced technology that allows for this. But we don't want to pass over this; we need to think about how this might happen.

For the MWI, universes may be linked by entanglement, but they would not be connected in any way that might allow for signals to be sent, even faster than light. Entanglement allows for instantaneous correlations between states. It does not allow for a signal to be sent faster than light. So we will assume that there is a way to send a signal via entanglement. This would allow for a trader in universe A to arbitrage a market in branched universe B by sending a signal there and receiving it back.

For the BWS multiverse, we could envisage a communication backbone consisting of an advanced faster-than-light communication method, for example, utilizing wormholes and exotic matter, to send signals there and back.

Given the communication issue, one might imagine an advanced machine learning system, utilizing quantum computing perhaps, that tries to predict the arbitrage based on information about the universe in question, or about this universe and how it might change.

This technology could allow for a trade to be simulated that is then confirmed by some communication method. So trades wait in a queue to be confirmed, depending on the speed and reach of the communication system.

One could even imagine derivatives based on speculations about the difference between the prediction and the communicated result, assuming there is one such prediction machine, when in fact there may be many, with different capabilities.

Other possibilities

A multiverse can arise in other speculative ways. String theory proposes that underlying reality includes a complex 6-dimensional shape called a Calabi-Yau manifold. This manifold structures strings, giving rise to reality as we know it. However, the complexity of this manifold allows for many other configurations. These configurations may give rise to entirely different universes. This 'string landscape' problem is not necessarily one that would lend itself to arbitrage, as the universes will tend to be very different from each other.

When you think about it, if the very foundation of reality alters, then everything else will tend to be very different. In the MWN, identical universes initially arise from the same quantum event, so the similarity is taken care of, for a time. In the BWS, physics allows there to be similar universes, but as we have seen, the issue is communicating the differences across unfathomable distances.

Arbitrage works by exploiting small differences. The scope of arbitrage has increased as technology allows faster communication. High-frequency trading is a type of arbitrage on very small differences. So we speculate in this article about a very different scale. The structures that allow for these similar universes to exist may arise in different ways: dimensions may be curled up in complex shapes, or form large-scale structures in which different universes may coexist (BWS), while in the MWI, similar structures may correspond to the seemingly inaccessible outcomes of quantum events. But the scale, both large and very small, of this type of arbitrage requires technology far beyond anything possible today. Would this advanced civilisation be interested in arbitrage? Well, it is something that has fascinated humans and appeared in different forms as technology has advanced, so it may well continue to do so in a possible distant future, but they may also pursue entirely different interests.

The Future of Finance: 7 Technologies to Redefine Trading

2024-05-18T11:38:00.005-04:00

Trading is technology driven. These technologies themselves live at the forefront of innovation, as they are subject to ever-increasing demands of capacity and speed. To meet these demands and others, various technologies have emerged that can be seen as playing or potentially playing a role in trading.

1. Cloud computing and data centers

Computing in the cloud is letting remote clusters of computing machinery process instructions, offering advantages of scale and scalability. For the trader, this means that their broker can offer fast services, and more directly for them, it means that they can run robots on machines other than their own computer, offering greater stability and processing speeds, compared to what is possible on their own machine.

Cloud computing essentially farms out high-end performance to the many. Cloud computing lives in data centers, where computing devices are clustered to reduce latency and to take advantage of algorithms for routing and processing efficiency. For example, at a data center, the servers of major financial institutions and liquidity providers may be co-located with the servers of the broker, offering proximity and attendant improvements in speed and efficiency.

2. Artificial intelligence and machine learning

Artificial intelligence (AI) and machine learning (ML) can be seen as technologies that can look at large amounts of data and see patterns, and from this data make inferences. While AI and ML have been behind the scenes in many technological processes (including data centers), in recent times it has come more into the open, via generative AI (gen AI).

Gen AI uses machine learning to create a non-deterministic, predictive inference engine, which has shown dramatic results in natural language processing (NLP). The non-deterministic and probabilistic nature of gen AI has helped create outputs that seem human-like, but also can produce inaccurate output, unlike a rule-based system or one that uses search to find an optimal result.

However, gen AI has the potential to analyze large amounts of market data and, in effect, process and make inferences on this data, in the way a human would not. Gen AI is relatively static in that it is pre-trained and may need to be partly trained again, using fine-tuning or methods intermediate between fine-tuning and full training. In effect there is a foundational model (itself a neural net, specifically a transformer based neural net) that may be tweaked to fit a particular case.

However as the neural net itself is a black box of extremely complex higher dimensional connections, weights and biases (from its training phase), it cannot be deconstructed and modularised to fit into other tasks. This is a limitation for the fast and complex world of trading, where model failures are a fact of life. So, gen AI can be seen as having applications in the pre-trading phase of trading, particularly in areas like sentiment analysis.

3. Quantum computing

Quantum computing seeks to utilize the underlying nature of matter to create improved computing machines and algorithms, to solve intractable problems, and see speed-ups in other problem types. Quantum technology makes use of several features apparent on the scale of particles, including superposition, where a particle can be in multiple states at the same time.

The impetus of quantum computing is the possibility of performing a kind of massively parallel computation instantaneously. Massively parallel computation is a way to speed up processing, but doing it instantaneously offers the tantalizing possibility of performing computations that are intractable even for massively parallel machines. However quantum computing itself has encountered a steep climb, from factors such as decoherence, which is the tendency for the quantum states to decohere from the myriad influences of its environment.

As well as the machinery there are also quantum algorithms, although given the nature of quantum computing these are tied to the underlying machinery much more closely than in conventional computing. Quantum algorithms may, however, offer improvement in ways to simulate market conditions and markets themselves.

4. Internet of Things

The Internet of Things (IoT) is an important but perhaps less visible technology that is making great strides and inroads in various areas. It is a type of enhanced connectivity, where many devices are connected for a task, allowing data to be collected with an increased level of granularity and density.

Trading is based on data, so it can be seen that increasing the density of this data and its scope could provide an enhancement. For example, instead of relying on a wheat report, the trader could potentially access real-time data about wheat. This data itself could be analyzed through techniques such as AI and ML to make sense of it and to spot emerging trends.

IoT is being used in the supply chain industry, and this is a way to access real-time information about possible disruptions and improvements, which can directly affect companies and economies.

5. Augmented and virtual reality

When Google Glass came out, there were those of us who wondered about its utility for trading. While Google Glass was discontinued, research has continued and has been enhanced by augmented and virtual reality. At Google I/O 2024, there were hints at a new route for Google Glass, via AR glasses.

AR and VR headsets already exist as do AR glasses, but one could speculate about something more glasses like (i.e. an everyday wearable) which could allow for tailored AI mediated information (perhaps from IoT !) to be delivered to the trader via their AR trading enabled glasses.

Of course, more information is not always better in trading, as the market itself digests inputs in complex, unpredictable ways. But perhaps AI could smooth this and allow for an enhanced delivery of pertinent information.

6. Blockchain

The blockchain is new but it is already well developed. This technology allows for trustless decentralized processing. Currently, the blockchain does have a use case in trading, as some brokers offer deposits via the blockchain, but there are potential use cases of the blockchain as an alternative backbone for processing financial data. This said, traders already deal directly with the blockchain if they trade cryptos, as these exist on their respective blockchains.

7. Theoretical physics and number theory

Theoretical physics has constructed advanced mathematical structures to explain complex natural phenomena, with great success. However, the application of these to financial markets has not met with similar success. One area that has a clearer use case in finance is number theory, particularly in the field of cryptography. Cryptography is important in finance for securing data and is key to the way the blockchain works. Modular arithmetic has a use case in High-Frequency Trading, as it is a way to compute large sets of numbers more efficiently.

One of the issues with financial markets and modeling them is the randomness. Traders look for correlations, and they look for causality. However, the market, particularly through volatility, can break up correlations, and causality can be lost in the complexity of interactions in the market.

However, it might be expected that continuing research and development in physics and number theory might yield improved methods for understanding and making inferences from markets. It might be added that underlying neural nets are mathematical models, so these already have a practical role when using AI to make inferences on financial data.

It may be that the future is what these advances in physics, engineering, and mathematics can produce to enhance trading and its myriad technologies, rather than using them predictively, as the market is inherently adversarial and works to arbitrage away any advantage.

Putting it all together

We have identified technology that can be used to make trading faster and more efficient. This is mostly at the level of the processing that goes behind the scenes; however, there can be potential improvements for the individual trader from technological improvements to enhance their access to information. We have noted that expecting technology to make trading easier is perhaps not the way to look at it, it is a way to enhance what trading can do in terms of speed and the type of information available.

The Recurring Potential For Direction

2024-01-24T07:47:00.003-05:00

The problem with Forex analysis is that the more detailed it is, the less it can take into account multiple outcomes (due to increases in complexity), and the less detailed it is, the less useful it may be for projecting outcomes. So is there a golden mean in this.

Underlying these issues is the problem that there is unpredictability in Forex. This emerges from the issues inherent in accounting for the influences of incoming data (either the nature of the data or its effect), which is to say, the underlying issue with fundamental analysis, and from inherent technical issues, which is to say that structures used to predict action may take different forms as they emerge.

If a prediction is being made based on the shape of something and this shape changes, then the prediction can be invalidated. However, the prediction itself could be constrained in terms of possible outcomes, which is a way to treat Forex analysis. This means that trading takes on a more dynamic form, where the trader may adjust the trade on the basis of emerging and altering expectations, based on shape formation and deformation. This is an argument for discretionary trading, contingent on the way the Forex market alters form.

Underlying this idea is the concept of constraints on outcomes; that is, while each event may have different outcomes, the weight of past events may act as a restraint on the outcome paths that might emerge from any formation. This itself is an argument for multi-time frame analysis, as it helps give an overview of restraints on a particular event. These restraints are a by-product of the way support and resistance take on different perspectives and importance when viewed on different time frames.

Issues with data effects and formation changes are potentially related, two sides to the same coin, as the capacity for different outcomes may be predicated on the effect of data. As suggested, it is not merely a matter of not knowing what the data is; it is also the issue of knowing what the effect will be. In news trading, this is revealed as the range of reactions that can happen, which may not make causal sense but which can still be explained after the event, like the way patterns seem clear after they are formed.

To see why this is problematic, it is necessary to consider the mental state prior to the news event and then the alteration that happens as the data is released, an adaptation to the present, which may in fact obliterate the expectation. This is why trading into the news or trying to be very dynamic towards the Forex market in more regular trading tends to be a pull on the trader. But riding the market can be problematic, as it is difficult to be buffeted back and forth. This is why online trading robots are used. Robots encompass an idea that it will work out, but there may be deep retracements, which underlie the idea that it is possible to find analytical structures in the Forex market that predict direction over time.

So all this comes back to the focus that in the Forex market, there is a kind of bias towards finding directionality, which is suppressed a lot of the time. Hence, near-perfect trends appear from nowhere. It may be the task of the trader to look for the potential for this directionality to emerge, that is, for a Forex pair to revert to form, in the midst of myriad influences on it. This itself may be an argument for technical analysis, as this is what this craft essentially aims to do, rather than predicting a given event at a given time.

Resisting And Supporting Order

2023-08-17T07:34:00.002-04:00

Do support and resistance and other 'weighty' patterns offer a kind of order in forex moves? Support and resistance are past support and resistance and, in effect, provide containers for different types of moves. When reading a chart, these containers are viewed in different ways, including by looking at them on multiple time frames.

The idea of multiple time frame analysis is to offer a sense of more persistent support and resistance as well as the origin of these levels. Multiple time frame analysis also has the effect of creating 'reinforced' containers, i.e., defining the top and bottom. Which is to say that detail on one level may appear more significant across multiple levels.

What happens at resistance or support is unpredictable. For example, a Forex pair may cut through only to fall back, or it may take a number of more horizontally inclined moves, themselves focused around the big figure (if this is the locus of the resistance or support). It can be noted that the early numbers above the big figure (to use a resistance example) provide both targets and attraction back down. In fact, above 20 can be seen as a limiter and a marker sometimes, requiring a deep retrace, perhaps below the big figure, to reinforce a renewed move in that direction.

While these moves are unpredictable, in terms of how far the pair can move and its direction, they do at least impose pattern order on the pair. That is, when viewed after the event, it can be seen that relatively clear patterns have been formed. In fact, this kind of movement can provide a basis for a more sustained move in a given direction once the resistance is established as support.

It can be seen that the movement around resistance also helps to establish support, which, when this happens, frees the pair to create further patterns. These patterns may be more directional. Traders want directionality, but even directionality becomes muted and reversed as different traders have different perspectives. However, it can be said that the logic of support and resistance, as interpreted by traders, is that less directionality may be expected and values between may allow for directionality, even if complex.

This said, multiple time frame analysis itself may add layers of resistance, as can indicators and charting analysis. However, these may be more like levels that produce complexity rather than reversing a move. An example would be an indicator that produces a bounce off it (such as a popular moving average), but only a bounce. This said, there are traders and programs for whom this is significant, adding further complexity. And as always, a bounce can become something else.

Another pattern with weight on it is a trend end. When it happens, instead of being teased via retracements. This can be seen as a disordering from the perspective of the trader, but a re-ordering perhaps from the perspective of the logic of the market. However, this end may emerge from a resistance or support layer (both of which can produce bounces).

It might be said that the part between the trend end and beginning, when it happens, is more susceptible to being overwritten by the market, as traders exiting positions and fading the move make this more likely. However, there is a kind of certainty as a trend end appears (even though it may not be such), which gives them an appearance of determinism in the sense of direction being altered. Trend beginnings do not necessarily have this 'I knew it' feeling; they are prone to different outcomes, but once apparent, they can have a certain weight of determinism to them. All this said, a key perspective in trading is to believe in the middle of the trend while watching for signs of the end.

The Mirror Reflects: Markets And Similarity

2023-04-11T10:59:00.003-04:00

To what extent do different markets reflect each other? While the Forex market and the stock market are very different, it can be seen that sometimes events in the stock market can see 'equivalent' events in the Forex market. However, this can indeed be a kind of reflection if it is that changes in liquidity and the way asset classes are valued equate to an equivalent kind of event in both markets. 'Risk on/Risk off' encapsulates this kind of thinking and has a logical expression in trading patterns and algorithms. This is a way of looking at Forex pairs as a kind of reflection of market events in other markets by virtue of their importance.

The involvement of Forex pairs in flows of money can also point to this kind of reflective behaviour in stock market events. In this case, the Forex pair in its charting pattern is kind of 'through a glass darkly', moving in response to events in the stock market.

However, Forex has complexity; thus, this kind of movement can be seen as an intermix of structure and volatility. That is, the normal kinds of patterns will occur in Forex, but there can be a kind of enhancement to these patterns, for example, a greater tendency to continue a trend (even if very structured), or a particularly sharp push towards the end of a trend.

During the crash of 2008, it could be seen that major Forex pairs showed a directional symmetry with the stock market, with an 'enhanced' volatility in the downward move, making them particularly complex markets, even if apparently simplified by direction. During intensely volatile moves in more recent times, Forex pairs can also be seen making sharp directional moves, which, when this intensity fades, may revert back towards their more common ground and then resume their former direction as the volatility returns.

What this may point to is a different characteristic in different markets, which interact in certain ways, even if only by traders and programs classifying them as similar in some way. However, the underlying nature of these markets remains, and in this sense of similarity, effectively reflects itself as they respond with patterns.

To say that a market reflects itself is to say that events in other markets do not have a causal relationship but rather allow for a sense of similarity to project from one to the other. But that similarity is the trader's or program's sense of what it is a market may do, a generalised set of patterns to watch out for, that is, trading markets in similar ways.

Nonetheless, markets retain their characteristics, for example, a perceived directional bias, a type of volatility, or a tendency to follow the leader. 'Following the leader' can be seen across markets; it is just more diffuse in some than others. A perceived directional basis can also be noted across markets, but this may be for reasons such as the imposition of fundamentals, which might be a factor more hard-wired in some than others. Volatility can also be seen across markets, but some may have a tendency to sharply drop or rise with greater ease than others.

These reflective features can create a sense of similarity through markets; the tendency for different markets to have different characteristics can point towards a kind of reversion back to the idea of self-reflection, creating a complexity in response.

Following the Unlikely in Forex

2023-03-23T08:44:00.004-04:00

What does unlikely really mean in markets? The markets are prone to unlikely moves, often driven by volatility. Unlikely can be seen as moves counter to the extended trend, which may happen from nowhere or in response to some change in fundamentals. When happening from nowhere, they can inherently be seen as unlikely. When happening from fundamentals, they can be seen as unlikely because they are counter to the prevailing, extended trend.

This said, a continuation can transform this sense of an unlikely move to one which becomes more likely and even then later to be expected. The move to "expected" can be seen as consequent, particularly from the perspective of a past that is a point where the move develops a momentum of its own and then maybe helps to focus on a particular fundamental as significant. This is a sense of a market not following fundamentals, but helping to solidify their relative importance.

In Forex, this sense of the unlikely permeates the trading environment. This is because fundamentals can seem disconnected from the way the market behaves, which is another way of looking at what is described as volatility and the sense that technical analysis may not work. That is, the trading stance is to trust something other than the market.

However, it might be said that structure in the Forex market, while it may not say where and for how long a move may go, can at least show patterns which explain why a pair is at support or resistance, for example. The likelihood may show in the details, if not in the bigger picture.

When stocks make unlikely moves, it may be seen from a perspective looking into the past that the move made sense. However, at the time, it may be that there were other outcomes which seemed more likely.

This is true of Forex as well, but in a manner that can point to the volatile, complex nature of Forex; that is, it can go in different ways at any time, all of which would make sense or no sense at all. While it can be possible to prune outcomes, the probability that one will happen is too prone to random events to make it inherently likely.

Random events can include a myriad of news and data that can affect Forex pairs. This said, less volatile pairs may show less capacity to move, as the capacity to move is itself composed of the myriad influences on more significant pairs. This can show in the complex patterns traced out on a day trading scale. Stocks tend to have a more static life, waiting for market volatility to move in the right direction and then to enhance or reverse their move with results. This said, liquidity flows can push or deplete stocks as they can directly or indirectly affect Forex.

One way of looking at whether something is likely or unlikely in Forex is to consider whether it is possible given current market conditions and past market events, which are establishing support and resistance. In stocks, these may not be so important, as the market is looking to value or revalue them based on clearer fundamental factors grounded to some extent in the stocks. Meaning that 'unlikely' events can happen, simply because it is easier to see what the event means, while a Forex move can simply be seen as related to or contingent on technical factors or on a data release which is neither lilkely or unlikely because it is being categorised as a surprise or not a surprise. That is, if it is a surprise, it is still to be seen as allowing for a likely outcome.

Even when Forex moves do not react as expected, it can be seen as due to factors that allow a move to oscillate, for example. In fact, it might be said that oscillation after a news release is the likely outcome, relatively speaking, as more directional outcomes may be contingent on unlikely events, such as a surprise (and may not happen even so).

It may be the case that complex outcomes are the only likely ones; thus, directional sustained moves are unlikely but may happen if they emerge from such an expectation. This counterintuitive nature of Forex also spreads over to stocks, as it is prone to complexity in outcomes, even if they seem simpler, taken part by part.

The Backstory Of A Forex News Trade

2023-02-09T09:43:00.006-05:00

The Backstory of a Forex News Trade

News trading is a type of trading which aims to speculate on the direction a Forex pair will move on release of economic data. This article attempts to explore some of the factors that may have significance when trading the news.

The FOMC is the Federal Open Market Committee for the US, and it sets a target for the Fed Funds rate at which banks lend to each other in the short term. This affects interest rates and economic activity in the wider economy, as it filters down, with a complex delay factor. Thereby, economic activity can be stimulated or dampened down, contingent on factors such as the inflation rate, which the Federal Reserve needs to control, and the time taken for the effect, intermixed with the effect of multiple changes (or lack thereof) over time.

The Fed has other tools to stimulate the economy at its disposal as well, which were used extensively in the years following the crash of 2008. However, the Fed Funds decision is the key headline piece of news data that the market digests at the moment of release and has perhaps become more prominent as the push for stimulus has waned. It is a core Forex fundamental, as it can affect pairs both in the very short term and the much longer term. It is perhaps fitting, given the complex nature of the Forex market, that it looks to this figure, which itself is layered in complexity in its effect but has an apparent simplicity that makes it a target for trading.

There are a set, pre-announced number of FOMC meetings each year. The FOMC decision is potentially important in financial markets, as it can directly affect the future valuation of USD, and many key Forex pairs are tied to USD. However, the effect on Forex pairs can be complex. The field of news trading is dedicated to speculation on market events such as the possible effect of a Fed Funds decision. This article seeks to untangle some of the factors that may be of significance.

There are many ways of looking at possible effects. For example, raising interest rates may tend to favour USD in USD pairs, but it can also have an opposite or more nuanced effect if it is seen as sending the economy into recession or if the aim is to dampen down economic activity.

However, in recent times, this balance was changed to some extent by unusual rampant inflation. Thus, the Fed was faced with the task of dealing with this inflation through a series of interest rate rises. That is, the concerns of inflation offset the fears of recession (for an unknown length of time).

The fact of initiating a series of rises after a long period of low interest rates itself provided impetus to the dollar. This is a 'macro-level' surprise, but news trading itself looks at micro surprises. There is a factor affecting valuation that is contingent on the unusual until it becomes usual. The caveat for news trading is that the FOMC figure has a kind of intricate effect that works over time, so this tends to make the clarity of the usual less apparent.

The change into the unusual and unexpected is perhaps the most significant moment in news trading. It might be expected that there is a delay in understanding or digesting the effect of a sudden change, but the Forex market can react very quickly to changed news inputs when it has a headline figure to work with. This can be seen from time to time by surprise economic data (not preset in terms of timing), which may occasionally result in sharp market reactions.

To some extent, the Forex market moves at both slow speeds (layers of future valuations) and extremely fast reactions, based on the ways computer programs and human traders will react in unison. Hence, sharp reactions to surprises can be seen as hard-wired into the market, especially if the surprise suggests a future change in valuation.

When factors are aligned, a news trade can produce a very rapid change in valuation in a matter of minutes or less than a minute. However, there is a decay factor in this reaction built into any sense of repetition or expectation. This may result in value oscillations, which can be a regular feature of news reactions.

What this might suggest is that the moment of news trading, close to the release of data, has the effect of narrowing the focus on the effect on valuation and then, after the release, widening it again.

In surprise situations, the narrower focus can align with the wider focus, producing rapid changes in valuation; otherwise, the complexity of immediate changes may produce a complex result, which can itself change as a result of a direction emerging from the complexity, for example, during the news conference for the FOMC or from a market deduction not apparent at the moment of release.

To some extent, the immediate reaction is precisely this, a reaction hemmed in by little room for manoeuvre, which widens as time progresses, eventually getting back to a normal. This said, the intensity of a new session opening near in time to the original release might produce that reprise of the events, which may happen from time to time.

The time of immediate release can be technical in that resistance or support levels may be respected to change the movement of value. Technical analysis and technical indicators are a kind of support when there is little logic to guide. For example, where should a sharp move end or pause? This is highly contingent on future events, as the market is effectively revaluing itself or trying to. But this value is a jump into the future. So technical levels provide a way to add market sense, where there is no or little knowledge, but there is directional movement, shaped perhaps by surprise.

This interplay of fundamental and more subtle applications of technical analysis is part and parcel of news trading. It means that relying on either can be problematic, but using both can be complex and not in the end indicative of the actual outcome, as it is contingent on the unexpected.

Technical analysis is aimed at regularities; it tries to make the market "expected". Thus, it does not tend to have a major role to play in news trading before the release. This said, there may be room for some kind of analysis before release to gauge the possible outcome, if only patterns of volatility, i.e., which way they are tending to go.

Fundamental analysis is important before release (and is the basis for economic calendars as they relate to news trading), with the caveat that there are potentially more factors at play, based on how the market is primed to react and to what extent it can react (i.e., is the release event priced in and how exhausted or elastic is the market). The search for something hidden in data that can indicate a potential surprise is an effort that can yield a potential surprise and direction, but nonetheless, the market may not react in this way, even if these suppositions are correct.

This idea of interplay of factors, shifting strands of possibility based on past, present, and future contingencies, is one that can ultimately suggest staying out of the market. However, the way a Forex pair can change value rapidly is something that remains a draw for traders despite the complexity and difficulty inherent in Forex news trading. But it can be noted that behind any apparent simplicity is a complex story which itself has resolution in the future rather than the present, so the figure itself is a conjecture in the sense of its interpretation in the market, but wrapped in the real world.