If optimization is a core process of forex then those spikes are reassurance, if you are going against the trend. If forex is dominated by growth those spikes are dangerous, if you are going with the trend.
The belief of Hardanalytics.com is that forex is evidenced by both processes and their interaction contains tradable moments, just as they do in the coarse grained wider environment of the equity market and times when the Dow re-starts a new run upwards. It is just in forex this happens many times during a session.
Does time make a difference, that is 1 min versus 30 min. If one thinks like a program, where time is essentially meaningless, does it make a difference (it makes a difference to a human trader, which is partly why many trade on time frames more in congruence with life).
Yes, because growth itself is bound by time and optimization is not. That is forex is a mix of time bound processes and time free processes, or more particularly machine processes versus processes from the natural world. That is to say that forex is more a program than the equity market, it is so highly computational, and to a program time is meaningless.
It has functional meaning for control processes in a program but a program can look at a time frame of 10 years and of a second with dispassion (and even this word does not convey the cold hard time-empty logic of this). Thus at the 1 minute time frame you are looking close to the heart of machine processes, not programs within forex, but the program of forex itself.
As you move out to 30 min it is still this, but it is disguised and masked by growth processes, or the perception of them (that is the chart looks like an equity chart). This suggest a computational asymmetry between low level and higher time frames (and indeed the correct use of the computational word level).
As I suggested in my most recent post Growth and Indicators in Forex and Stocks, long term Dow processes are presumably highly influenced by investors valuing companies on a proactive basis.
Now is that the source of optimization, because it most certainly is one. Well, the problem is that it is not a highly accurate procedure, that while the aim is to optimize a valuation, the market resists this optimization.
In some cases it does not, and that is the greatness of the US market. This is the process of finding computational keys in financial statements that the market will grow, and watching for a reduction of this process both in the company and in the markets.
It might be suggested that the equity market works best when left alone, that is when one does not get caught up in the markets own optimization processes (that is, there is a process at work perhaps involving forex separate from external valuations). Of course this is a general point for markets, it is the harmony between being with the market and being smashed by the market and is true at all levels.
This is an argument made in forex, that you do not want to get too caught up in the details. But of course some do find trading deep in the details of forex a productive experience (e.g. finding tradable moments in 1 min or shorter, even tick data). I would support such a contention, in fact there is detail for the human eye in tick data, and if one is lost on the 1 min, tick data can give a sense of tradability.
For me that is the key in forex, not to trade if you do not have a feel for what is happening in the market and to me, the theory suggests that key processes happen in forex at very low levels. If there are fine grain computations in forex important for all markets, then here is where they probably will happen.
It is just for a human, losing that harmony is easy at this level. The problem is that computers arguably do not yet have the computational capacity to capture this. The idea is to get support for this from effective use of structuring indicators (either for the human or program).
That is an argument for concentrating on higher time frames, but I might suggest one loses that sense of market structure readability as one moves out, to an important extent. There are some forex traders who find the most intricate structure at these levels, but the question of reasonable predictability applies, for me anyway.
What I mean is the functionality of the information is less clear. But that level of expert knowledge and attention to structural detail may overcome this, in conjunction with indicator use emergent from forex.
That really is what I mean by the appearance of equity growth processes in such forex charts, but not the same kind of predictability (for equities one has a financial statement, but that external optimization may make the well interpreted higher time frame equity charts more predictable).
What this means in a practical way is that the scope for large gains are there, but one has to scratch a lot of trades. The tradeoff at 1 min is less scope and transaction costs for perhaps greater predictability, unless one can ride the waves better, i.e. find greater precision.
I will note that those deep divergent bars do not seem any more tradable in forex at 30 min than 1 min. What I am suggesting is that RSI extremes have more predictability as a confirmation signal for them at 1 min than at 30 min.
That is because there is a clearer fine grained process at work here, than at the 30 min level. That is there may be greater scope for precision at levels close to forex internal computational processes, with correct support.
© 2011 Guy Barry - All Rights Reserved.
