Ok Girly or Chas, Muffsy, Kim, or someone smart, s'plain this to me...
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16-01-2013, 01:59 AM
Ok Girly or Chas, Muffsy, Kim, or someone smart, s'plain this to me...
So, it's well known that financial data follows fractal patterns, (for example, below, is a Fibonacci retracement of the Euro/$ recently). How is that possible, if there are literally millions of people involved in the process of the trading ?
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16-01-2013, 02:47 AM
RE: Ok Girly or Chas, Muffsy, Kim, or someone smart, s'plain this to me...
I mostly trade the EUR/USD, I like the volatility. I also work for one of the US's largest forex trading brokers. So here's my take on it.

Foreign Exchange (forex) is almost entirely an illusion (although the big national banks tweak it for real from time to time, so it's not all illusory).

Let's consider the most obvious example, the US Nonfarm Payroll announcements each month. The US Bureau of Labor Statistics publishes this once a month. When the statistic comes out, it shows key factors of US employment statistics, such as national unemployment rates. These are real. Many savvy traders pay very close attention to this report; it might be the single most influential monthly report in any currency market.

Forex investors see what looks like either good news or bad news. Let's say that this month the news was good (I didn't check, I trade on technical analytics, not fundamental). That means that anyone trading a currency pair that includes the US Dollar (USD) will see the good news as a sign that the dollar is, at least at the moment, getting stronger. That means you should "bet" in favor of the USD. If you're trading the EUR/USD, that means opening a short position on that currency pair.

Since so many traders are watching this report and they all see a strong dollar (in this example), they all open short positions on the EUR/USD. This causes the market to swing in the favor of USD. Other traders (or even some of the same ones) might have long positions already open in that market - they will do the smart thing and close them as fast as possible before they lose cash. This also causes the market to swing in favor of the USD.

At this point, literally millions of people are making forex trades all within a few minutes of the US Nonfarm Payroll report going live. Almost all of them are pushing the market toward USD (in this example). This can cause a huge, immediate swing in the currency pair.

Now other forex investors see the swing and jump on board, and the snowball effect begins. More and more traders jump onto this trend so the trend gets bigger. And bigger.

But now the funny thing happens - some of them start to worry that the trend will reverse. And they are absolutely correct. It will reverse. The only question is when. The less courageous jump off the trend by closing their profitable positions early; they're guessing the trend reversal will be immediate. This has the effect of slowing the trend. More guesses, more closed positions, more slowing. Now the slowing is visible so a bunch of slightly smarter (or at least more courageous) investors see the slowing and they jump off, causing even more slowing, more jumping, more slowing.

Sooner or later, there is so much slowing that the trend has stopped completely. And then, like a pendulum, it swings back toward where it was before.

Now anyone with an open short position is dumping faster than they would dump a girlfriend with herpes. The reversal gains momentum and heads back to right where it was before the report was released. Of course, if nothing happens, it will go way past that point, and sometimes it does. But savvy investors know that the reversal will reverse again, and again, and just like a pendulum with nothing to cause it to swing, it will eventually wind down to its center point - right where it started (or reasonably close to that point).

The point of all this? Did the US economy really change between last month and this month? Maybe, a tiny tiny bit, not enough for you and I to notice it. But this one report spurs a whole flurry of trading that causes a huge, unjustified illusionary confidence in the USD which in turn results in unjustified trading based on that illusion.

And something like 98% of the traders out there know it. So every one of those traders is just playing with the illusion, knowing it's an illusion, but also knowing that it can be a profitable illusion while it lasts - open the short position, ride it until you see signs of reversal, close that position at a hefty profit, then open a long position and ride the reversal back home for another hefty profit.

I have oversimplified it. It's not as easy as I made it out to be, but this is the bare-bones gist of it.

Your Fibo indicator (is that screenshot taken from Metatrader?) shows a much smaller version of what I just described; clearly it's not the nonfarm activity. But even the small swings in any market follow the above patterns - some people push the market in one direction, it starts to move, more jump on, it moves a little more, and a little more, but sooner or later people start closing losing trades or even start closing winning trades in fear of the impending reversal, and these very closures cause the reversal.

It's all hopes and doubts and fear that motivates most of the trading in any forex market (as well as stocks and commodities and metals and futures). Often the initial trading is started by an event, but then it's all illusion after that - the real event may move the final resting spot of the market in one way or the other, but all the swinging back and forth is investor emotion.

"Whores perform the same function as priests, but far more thoroughly." - Robert A. Heinlein
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16-01-2013, 03:50 AM
RE: Ok Girly or Chas, Muffsy, Kim, or someone smart, s'plain this to me...
The Fibonacci Sequence is the language of the gods, and the gods are greedy.

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16-01-2013, 04:05 AM
RE: Ok Girly or Chas, Muffsy, Kim, or someone smart, s'plain this to me...
(16-01-2013 02:47 AM)Aseptic Skeptic Wrote:  I mostly trade the EUR/USD, I like the volatility. I also work for one of the US's largest forex trading brokers. So here's my take on it.

Foreign Exchange (forex) is almost entirely an illusion (although the big national banks tweak it for real from time to time, so it's not all illusory).

Let's consider the most obvious example, the US Nonfarm Payroll announcements each month. The US Bureau of Labor Statistics publishes this once a month. When the statistic comes out, it shows key factors of US employment statistics, such as national unemployment rates. These are real. Many savvy traders pay very close attention to this report; it might be the single most influential monthly report in any currency market.

Forex investors see what looks like either good news or bad news. Let's say that this month the news was good (I didn't check, I trade on technical analytics, not fundamental). That means that anyone trading a currency pair that includes the US Dollar (USD) will see the good news as a sign that the dollar is, at least at the moment, getting stronger. That means you should "bet" in favor of the USD. If you're trading the EUR/USD, that means opening a short position on that currency pair.

Since so many traders are watching this report and they all see a strong dollar (in this example), they all open short positions on the EUR/USD. This causes the market to swing in the favor of USD. Other traders (or even some of the same ones) might have long positions already open in that market - they will do the smart thing and close them as fast as possible before they lose cash. This also causes the market to swing in favor of the USD.

At this point, literally millions of people are making forex trades all within a few minutes of the US Nonfarm Payroll report going live. Almost all of them are pushing the market toward USD (in this example). This can cause a huge, immediate swing in the currency pair.

Now other forex investors see the swing and jump on board, and the snowball effect begins. More and more traders jump onto this trend so the trend gets bigger. And bigger.

But now the funny thing happens - some of them start to worry that the trend will reverse. And they are absolutely correct. It will reverse. The only question is when. The less courageous jump off the trend by closing their profitable positions early; they're guessing the trend reversal will be immediate. This has the effect of slowing the trend. More guesses, more closed positions, more slowing. Now the slowing is visible so a bunch of slightly smarter (or at least more courageous) investors see the slowing and they jump off, causing even more slowing, more jumping, more slowing.

Sooner or later, there is so much slowing that the trend has stopped completely. And then, like a pendulum, it swings back toward where it was before.

Now anyone with an open short position is dumping faster than they would dump a girlfriend with herpes. The reversal gains momentum and heads back to right where it was before the report was released. Of course, if nothing happens, it will go way past that point, and sometimes it does. But savvy investors know that the reversal will reverse again, and again, and just like a pendulum with nothing to cause it to swing, it will eventually wind down to its center point - right where it started (or reasonably close to that point).

The point of all this? Did the US economy really change between last month and this month? Maybe, a tiny tiny bit, not enough for you and I to notice it. But this one report spurs a whole flurry of trading that causes a huge, unjustified illusionary confidence in the USD which in turn results in unjustified trading based on that illusion.

And something like 98% of the traders out there know it. So every one of those traders is just playing with the illusion, knowing it's an illusion, but also knowing that it can be a profitable illusion while it lasts - open the short position, ride it until you see signs of reversal, close that position at a hefty profit, then open a long position and ride the reversal back home for another hefty profit.

I have oversimplified it. It's not as easy as I made it out to be, but this is the bare-bones gist of it.

Your Fibo indicator (is that screenshot taken from Metatrader?) shows a much smaller version of what I just described; clearly it's not the nonfarm activity. But even the small swings in any market follow the above patterns - some people push the market in one direction, it starts to move, more jump on, it moves a little more, and a little more, but sooner or later people start closing losing trades or even start closing winning trades in fear of the impending reversal, and these very closures cause the reversal.

It's all hopes and doubts and fear that motivates most of the trading in any forex market (as well as stocks and commodities and metals and futures). Often the initial trading is started by an event, but then it's all illusion after that - the real event may move the final resting spot of the market in one way or the other, but all the swinging back and forth is investor emotion.
I know how that Friday's activity works. Sometimes, (when the Euro was really in trouble), it doesn't reverse. But one day, in the daily pattern does not explain the fractal pattern of the monthly data, which includes all the trading days of the month, or the fractal patterns in the monthly data, hourly data, 15 minute data, etc etc. There are fractals everywhere there. Are they ALL watching and trading the same charts ? It's also true of stock data, index data, bond data, etc etc. Whay are there fractal patterns there ? Why is it not just chaos ?

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Isaiah 45:7 "I form the light, and create darkness: I make peace, and create evil: I the LORD do all these things" (KJV)

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16-01-2013, 05:09 AM
RE: Ok Girly or Chas, Muffsy, Kim, or someone smart, s'plain this to me...
Wait I'm confused, are you implying that Girly, Chas, myself and Kim aren't smart? Because the way you worded the title sorta says that. Girly, Chas, Muffsy, Kim OR someone smart. Consider Dodgy


I don't know if I wanna answer your question now. Angry

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16-01-2013, 06:13 AM
RE: Ok Girly or Chas, Muffsy, Kim, or someone smart, s'plain this to me...
(16-01-2013 05:09 AM)earmuffs Wrote:  Wait I'm confused, are you implying that Girly, Chas, myself and Kim aren't smart? Because the way you worded the title sorta says that. Girly, Chas, Muffsy, Kim OR someone smart. Consider Dodgy


I don't know if I wanna answer your question now. Angry
Fuck you. Tongue I meant you, or anyone as smart as you peeps.

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Isaiah 45:7 "I form the light, and create darkness: I make peace, and create evil: I the LORD do all these things" (KJV)

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16-01-2013, 12:56 PM
RE: Ok Girly or Chas, Muffsy, Kim, or someone smart, s'plain this to me...
(16-01-2013 04:05 AM)Bucky Ball Wrote:  I know how that Friday's activity works. Sometimes, (when the Euro was really in trouble), it doesn't reverse. But one day, in the daily pattern does not explain the fractal pattern of the monthly data, which includes all the trading days of the month, or the fractal patterns in the monthly data, hourly data, 15 minute data, etc etc. There are fractals everywhere there. Are they ALL watching and trading the same charts ? It's also true of stock data, index data, bond data, etc etc. Whay are there fractal patterns there ? Why is it not just chaos ?

That was, of course, just one example. You included a second one, how the reversal never happened when the Euro was in trouble - that was a good time for smart investors to short the EUR in favor of just about any currency they like and ride it for as long as they dared.

The monthly pattern is just a bigger confluence of all of these kinds of factors. In any given month, there are probably hundreds, maybe thousands, of events, some of them fairly major, most of them fairly minor, all creating pressure one way or the other in every forex market.

Think of it like a tug-o-war. Two teams holding opposite ends of one rope, each trying to pull the other team to their side of the contest. For this, imagine that they are more or less evenly matched. The rope is straining from all the pulling, all the pressure trying to move these two teams. It might slip a few inches toward Team A, maybe even a foot or two. Team A sees that it's slipping and fears that they might lose, so they pull harder, trying to avoid the loss. This results in the reversal and the rope is now slipping back to its original position, maybe even past it until Team B sees that now they are in danger of losing and starts pulling harder. It helps that once Team A is out of danger, they tend to relax a little, maybe ever so slightly, but that gives Team B the opportunity to stop the reversal.

And so on.

If these teams are perfectly balanced, that rope might slip back and forth a little bit here, a little bit there. Throughout the contest, each team may find themselves in danger dozens of times but they pull harder and it goes back to normal until the next time it slips.

The forex market is like that. Any little thing can cause the market to move, slightly, in one direction or the other. Investors see that motion and hope or fear that it might be a big one. The ones with hope open positions to take advantage of the movement. The ones with fear close existing positions before they suffer a big loss. These actions cause more movement and the trend gains momentum, moving farther. More hope, more fear, more trend. But the farther it gets out of balance, the more the hope turns into fear, fear that this trend is going to reverse. So they close, turning that fear into reality as more and more closures slow the trend and ultimately reverse, aided by new investors who spot the impending reversal and hope it will be a big one so they jump in with their own purchases that support the reversal.

So it swings back and forth like a pendulum, spurred by hopes and fears that are pulling the market in both directions just like that tug of war. But unlike the tug of war, it's possible (and frequently it's reality) that the same traders are investing on both sides of the contest. Me, when I spot a trend going one way, I jump in and open a position and ride the trend as long as a dare, making a profit. When I see it losing momentum I close that first trade, wait for the actual reversal, then open a new trade and ride the reversal for profit - I make money coming and going.

Yes, it's even more complex than that, as real market events can create momentum too, but then the hopes and fears can turn a little momentum into a big trend, followed by a reversal. And long term market issues can cause long term trends that can last years (look at the USD over the last 12 years) - the trend can continue for a very long time, but the monthly, daily, even hourly pendulum swings still occur for the reasons above.

"Whores perform the same function as priests, but far more thoroughly." - Robert A. Heinlein
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16-01-2013, 01:14 PM
RE: Ok Girly or Chas, Muffsy, Kim, or someone smart, s'plain this to me...
(16-01-2013 01:59 AM)Bucky Ball Wrote:  So, it's well known that financial data follows fractal patterns, (for example, below, is a Fibonacci retracement of the Euro/$ recently). How is that possible, if there are literally millions of people involved in the process of the trading ?


It's because there are literally millions of people involved in trading. Drinking Beverage

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16-01-2013, 01:26 PM
RE: Ok Girly or Chas, Muffsy, Kim, or someone smart, s'plain this to me...
(16-01-2013 01:59 AM)Bucky Ball Wrote:  So, it's well known that financial data follows fractal patterns, (for example, below, is a Fibonacci retracement of the Euro/$ recently). How is that possible, if there are literally millions of people involved in the process of the trading ?

It is like a dance party; the more the merrier. Drinking Beverage

I think in the end, I just feel like I'm a secular person who has a skeptical eye toward any extraordinary claim, carefully examining any extraordinary evidence before jumping to conclusions. ~ Eric ~ My friend ... who figured it out.
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16-01-2013, 04:51 PM
RE: Ok Girly or Chas, Muffsy, Kim, or someone smart, s'plain this to me...
(16-01-2013 01:14 PM)Chas Wrote:  
(16-01-2013 01:59 AM)Bucky Ball Wrote:  So, it's well known that financial data follows fractal patterns, (for example, below, is a Fibonacci retracement of the Euro/$ recently). How is that possible, if there are literally millions of people involved in the process of the trading ?


It's because there are literally millions of people involved in trading. Drinking Beverage
But why does that result in a fractal pattern ? Why shouldn't it just result in "Chaos" ? (I know there are fractals evident in Chaos Theory, but why does millions of independent traders acting, result in an overall Finonacci sequence ?)

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Isaiah 45:7 "I form the light, and create darkness: I make peace, and create evil: I the LORD do all these things" (KJV)

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