This is especially true in forex, where the complexity of the immediate future is artificially increased. That is forex valuations are complicated by trading assumptions.
The trading assumptions desire simplicity, namely somehow to maintain a steady increase or decrease in a pair's relative valuation for a sufficiently long time. However the projection of future valuations on a market which does not conform to such projections probably itself adds randomness to the market.
In equities if one projects a future valuation, one is in theory adding stability to its pricing, if it is grounded in an analysis of its statements which are based on compiled knowledge of the markets functionality and the market does indeed function this way.
So what can add stability to forex pricing. In theory using market compilation. But what is this in forex. I have looked at market functionality to say that for example forex may optimize. That does not necessarily give one valuations, but it suggests that the way the market moves may be how it works. If it were a trending market it would be more like equities.
It is not, the trend reversals tend to be hard but not so deep, for example. It is not that the market is rejecting valuations, it is rather that it is exploring valuations. Again the capacity of this market to resist forced trends suggest that it does not inherently look for deep changes in relative valuations.
So how does support and resistance fit into this. It might be suggested that the clarity of support and resistance reflects this pricing process, but it is not support and resistance at all, it is simply rejection of non native process and/or the exploration of pricing. Projecting support and resistance assumes a memory in pricing, but it may be that pricing in forex does not make use of memory at all, as some studies may suggest.
In all events, I have noted that there does seem to be a long term memory of some kind, a memory of reference, but because its utility seems random, then one might assume this process is not about pricing references either. That is the apparent clarity of support/resistance could easily be the same pattern but with a very different reference thus a very different pricing.
What makes it a different reference could be a random event in the market or some functionality of the market. The randomness could be part of a process of optimization, as this process requires jumps out of local minima, that is solutions which are not optimal on a larger scale. One might note that the comments of governments at pricing extremes may happen in conjunction with non-optimal pricings, to have an effect.
One did note that the comments of Obama that reversed the pricings of oil, were effective to an extent because oil was reflecting pricings which were way out of sync with the state of the economy. I might conjecture that commodities are also about optimization but the range of valuations is freer, that is growth is strong here.
Is is relative valuations which constrain growth in forex pricings. It did not seem to constrain growth in EUR relative to USD when both economies were growing, up till the crisis. As I have noted on this site, pairs seem to evidence a maintenance of structure over time, which may reflect either the way traders deal with them or the fact that some may optimize more than others.
Less growth of any kind, may perhaps mean more optimizations. What traders want is growth, but the problem with growth is it retraces because it becomes divorced from real pricing, either a commodity out of sync with the capacity of a people to pay pump prices or security priced above a saturation threshold of future pricing (suggesting a commonality of retraceable valuations, that is where pricing will cause money flow opposite to the pricing).
What does this suggest for underpriced assets and the markets. It suggests a greater sensitivity of commodity valuations to this underpricing, but perhaps a greater precision of forex valuations to this, but a greater coherence of equity valuations to pricing extremes.
This suggests a utility for support/resistance. When one uses fundamental analysis one assumes that this system reflects the external world, defined in certain constrained ways, as inputs into the system. That is, one assumes a symmetry. When one uses technical analysis one assumes a symmetry between the system and points where one might expect saturation of valuations to occur.
That is support/resistance is a possible way of signalling an area where the market may change direction, just not necessarily what this direction may be, based on a cohesion between fundamental and technical analysis, as analytical methods applied.
Whether this happens or not may depend on the way the pair has tended to compute growth and valuations over the long term. This is like having a way of projecting changes in a company statement, which is what some analysis seeks to do. It is a possible approach towards use of compilation in the forex market.
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