Continuation: My subscription to the how/why of market behavior.
Spoiler alert: Here's where I'm headed -- (1) FX is not random, (2) there is no master-algo, (3) it makes no difference whether I am right or wrong.
This post completes my description of how/why the market behaves as it does.
First I have to introduce "volume". Now there is some disagreement about "real" volume versus "tick" volume. I only have access to "tick" volume so that is what I'll be using. I don't want to get into a debate about "real" versus "tick" volume. If "tick" volume is a deal-breaker for you well, then, so be it. I've posted this reference before -- an analysis that concluded "the correlation between tick volume and actual volume is over 90%" (https://www.currenciesfx.com/index.p...market-volumes).
The reason volume is important in this discussion is because that is where "the tires hit the road". Volume requires that funds exchange hands. In contrast, "master algo" claims that price changes without funds exchanging hands. There isn't room in the house for both volume and "master algo" -- they are mutually exclusive.
The chart below shows tick volume and Stochastics -- their alignment isn't perfect, but you can definitely see it (purple is volume and blue is Stochastics). In other words, volume and price exhibit a pendulum-like behavior consistent with a system. If volume and price align then there is no room for a "master algo".
Now, the folks who adhere to a master algo claim there are certain price behaviors that repeat (e.g. fractals, target prices) and, hence, that's indicative of a master algo at work. But not necessarily. We all have habits that we repeat, but that doesn't mean our minds are controlled by a master algorithm. The fact that certain patterns repeat is consistent with a system. Systems exist in different states. Often times there are only a finite number of states. So it is completely consistent for a system to find itself in a state very similar to or identical to one it had previously been in.
To summarize:
1. FX is NOT random -- FX is a system.
2. No master algo. The fact that a system's state gets revisited does not require that a master algorithm has decided in advance what future prices will be. Fortuitously, the master algo folks might even feel a bit relieved. Their story requires always striving to reverse-engineer a master algorithm since that is where glory lies. When FX is viewed as a system then that burden is lifted -- there is nothing that needs to be reverse-engineered.
3. I have no idea how points (1) or (2) influence my trading or should influence yours. They help to compose a story that no one here can prove one way or another. Having a story may help a discretionary trader see clues that neither I nor my EAs can see or use -- and I envy them for that. But for algorithmic trading none of what I've posted makes a bit of difference since EAs don't use stories.
moodybot -- I thank you for giving me the space to post my subscription for how/why the market behaves as it does. I hope I haven't over-stepped my bounds with my comments about "master algo".
One last point here -- a clue how you might use what I've posted for actual trading. If I were to trade a pendulum (Stochastics, or DSS Bressert, or volume) I would probably open a trade just as the pendulum was passing the midpoint, since that is when it has the most momentum (or acceleration). That trade would only last a bar or two because the pendulum will shortly lose acceleration (i.e. price is exhausted) and head back in the other direction.
For fun and exploration, here are volume indicators -- they must be installed in the 'Indicators' folder. FxVolumes is not mine. OIY-FxVolumes is mine and requires FxVolumes.
Spoiler alert: Here's where I'm headed -- (1) FX is not random, (2) there is no master-algo, (3) it makes no difference whether I am right or wrong.
This post completes my description of how/why the market behaves as it does.
First I have to introduce "volume". Now there is some disagreement about "real" volume versus "tick" volume. I only have access to "tick" volume so that is what I'll be using. I don't want to get into a debate about "real" versus "tick" volume. If "tick" volume is a deal-breaker for you well, then, so be it. I've posted this reference before -- an analysis that concluded "the correlation between tick volume and actual volume is over 90%" (https://www.currenciesfx.com/index.p...market-volumes).
The reason volume is important in this discussion is because that is where "the tires hit the road". Volume requires that funds exchange hands. In contrast, "master algo" claims that price changes without funds exchanging hands. There isn't room in the house for both volume and "master algo" -- they are mutually exclusive.
The chart below shows tick volume and Stochastics -- their alignment isn't perfect, but you can definitely see it (purple is volume and blue is Stochastics). In other words, volume and price exhibit a pendulum-like behavior consistent with a system. If volume and price align then there is no room for a "master algo".
Now, the folks who adhere to a master algo claim there are certain price behaviors that repeat (e.g. fractals, target prices) and, hence, that's indicative of a master algo at work. But not necessarily. We all have habits that we repeat, but that doesn't mean our minds are controlled by a master algorithm. The fact that certain patterns repeat is consistent with a system. Systems exist in different states. Often times there are only a finite number of states. So it is completely consistent for a system to find itself in a state very similar to or identical to one it had previously been in.
To summarize:
1. FX is NOT random -- FX is a system.
2. No master algo. The fact that a system's state gets revisited does not require that a master algorithm has decided in advance what future prices will be. Fortuitously, the master algo folks might even feel a bit relieved. Their story requires always striving to reverse-engineer a master algorithm since that is where glory lies. When FX is viewed as a system then that burden is lifted -- there is nothing that needs to be reverse-engineered.
3. I have no idea how points (1) or (2) influence my trading or should influence yours. They help to compose a story that no one here can prove one way or another. Having a story may help a discretionary trader see clues that neither I nor my EAs can see or use -- and I envy them for that. But for algorithmic trading none of what I've posted makes a bit of difference since EAs don't use stories.
moodybot -- I thank you for giving me the space to post my subscription for how/why the market behaves as it does. I hope I haven't over-stepped my bounds with my comments about "master algo".
One last point here -- a clue how you might use what I've posted for actual trading. If I were to trade a pendulum (Stochastics, or DSS Bressert, or volume) I would probably open a trade just as the pendulum was passing the midpoint, since that is when it has the most momentum (or acceleration). That trade would only last a bar or two because the pendulum will shortly lose acceleration (i.e. price is exhausted) and head back in the other direction.
For fun and exploration, here are volume indicators -- they must be installed in the 'Indicators' folder. FxVolumes is not mine. OIY-FxVolumes is mine and requires FxVolumes.
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