In the short-time scans (intraday trading) within one cycle .- In the process of pricing in the FOREX market there was a systematic bias. How can it be used effectively in trading - described in the article.
On the fractality and market efficiency
As is known, the process of pricing in FOREX can be described using the theory of fractal market, which was the logical extension of understanding of the theory of efficient market [1-4]. Recall that in this theory is compared (estimated) price of the asset to its market price. The problem is, how much and how often the market may underestimate or overestimate an asset. A trader who has discovered or underestimate the market asset, would be able to risk-free profit. Efficient market hypothesis tells us that this is impossible. Indeed, in the course of the investigated asset laid almost all the available information to market participants. This implies that the observed exchange rate fluctuations should occur randomly, and no one can predict the market prices. The existence of the market as a stable system with the liquid assets necessary to conduct bidding on it. Foreign Exchange Market, with its fractal structure of the normal probability distribution of price changes on the selected intervalevremeni depending on market volatility, and regardless of the depth of the investment horizon - is a stable, self-regulating system.
As the market many investors are involved with different investment horizons, the collapse or panic on one investment horizon will be absorbed and smoothed out by other horizons. Each market participant has its own investment horizon and decides, in accordance with its duration and the expected behavior of the market in the selected time interval.
However, if the market had the same investment horizon, he would become unstable and illiquid. Lack of liquidity in the market creates panic. Thus, the source of liquidity to the market - investors with different investment horizons, different conclusions on technical analysis (or differently interpret fundamental information) and, consequently, have different understandings of the investigated asset prices.
Since market prices are constantly experiencing fluctuations, then, according to Soros, market equilibrium in the life extremely rare [5]. Supply and demand curves correlate NOT only among themselves but with the mentality of market participants, which may, in turn, significantly affect these same curves.
Decisions on purchases or sales are made based on forecasts of future prices, which, oddly enough, is largely determined by these decisions in real time. All this greatly resembles the work of an amplifier with positive feedback. Projections and actions of market participants price fluctuations serve as a self-fulfilling prophecy.
Expectations and amplitude fluctuations of prices
The role of expectations in recent years has increased markedly, because traders an opportunity to work with a large banking arm in many market segments. The amplitudes of the fluctuations of prices have increased because of the possibility almost instantly bring to appreciable capital markets and manage mode intraday trade. In this situation, there is no guarantee that the drivers will manage and settle such fluctuating price hikes.
From physics we know that near the equilibrium second law of thermodynamics leads to a gradual decay of fluctuations. The equilibrium system is usually described in terms of averages, because the equilibrium state is stable under various fluctuations and noise, which are constantly outraged by these averages.
And what happens to the fluctuations in the strongly non-equilibrium system? In this system, the fluctuations may cease to be just noise and can be a factor in guiding the global evolution of the system. Near equilibrium, as a rule, cause-effect relationships are working more or less regularly. But the system is significantly deviate from the equilibrium position itself as the cause of evolution becomes a victim of circumstances. In this sluchae we can only deal with probabilities, and no increase in knowledge will not restore the broken chain of causation and to predict what results will come this system.
On the other hand, fluctuations in the prices themselves, at some certain time interval may be the birth of a trend in the other, much smaller time scales. Such a re-nascent trend primknet mass of speculators, open positions on this trend and thus changing the very conditions of supply and demand, which until then relied on the fundamental laws. As a result, the market may become highly non-equilibrium with deviation from the average price of four or more sigma (standard deviations prices investigated currency). In this case, understanding the dynamics of exchange rate movements of the asset is possible only with the positions of the elements of fractal geometry to the analysis of the market.
On the "long memory" of the market
Fractal hypothesis of financial market explains the existence of the financial market of the nonlinear stochastic process. This process, in turn, generates long-range effect - effect market (longmemory process). Its essence is that the random walk of prices, it is nevertheless quite a long time (much greater than the theoretically estimated time horizon of the market) keeps in memory of their previous numerical values and in the process evolution still focused on them .
Indeed, the market constantly meet different combinations, proportions and combinations that allow quite successfully to predict the subsequent development of the market, despite the chaotic process of pricing in the shallow investment horizons. I have repeatedly not only demonstrated the existence of long-range effect, but also showed the possibility of measuring its length (including bars). And this - a direct way to test your technical indicators for true and false alarms [1, 4].
The main issue of pricing in the market of FOREX - random whether prices of essential, highly liquid financial instruments? Trader- often explores the historical behavior of selected asset to the audit of a technical indicator, for example, MACD, which he uses in the real auction. In this case, he must be sure that the correct prediction made by MACD, not accidental, but based on the ability of an indicator to predict reversals or emerging market correction.
How in practice to distinguish between a random walk prices from nonrandom? At first glance, one can conclude that if the market there is a pronounced trend, this is a sign of a non-random price movements. Or, in other words, long-period moving average curves of a random walk of the course of an asset should be placed horizontally, since averaging over a large ensemble of random variables, as a rule, gives zero. But is it really? More precisely we can say that the dynamics of the foreign exchange market from a position trading can be quite random, if past stock price dynamics is close to the trajectory of a series of numbers issued to a random number generator at regular intervals.
About two states
On the Physics Department of Moscow State University I had a printout of several trajectories, modeled in such a generator under the following conditions:
1. The initial number was selected 1.5000, which is comparable with the rate of USD / CHF;
2. The standard deviation of the price of artificial currency is 50 points, which also falls within the range of the real trading market for the USD / CHF.
After a fairly long comparative study of the trajectories obtained with the rate schedules USD / CHF at different time intervals I managed to find a more or less similar pattern (Fig. 1).
Trajectory built random number generator (bottom figure); time schedule rate USD / CHF (top picture). Fig. 1. Trajectory built random number generator (bottom figure); time schedule rate USD / CHF (top picture).
Trajectories plotted random number generator, can be taken for the dynamics of the course of some currencies. If desired, they can see trends, reversal points, cycles and other attributes of the graphs. One trader friend of mine, seeing lower graph in Figure 1, asked what instrument he belongs. In his view, it is easy to sell, as traced a distinct trend, besides the schedule is full reversal pattern and has some strong support levels. A friend was surprised when I told him that this is the trajectory of a random walk. I beg the reader to take another look at the submitted drawing and answer me: is it possible to argue that market trends are present (non-random process of pricing), but on the grounds that they are easy to visually interpret the graphs the price?
Every trader knows how dangerous it is to see trends where there are none, and pick up signals technical indicators - and wrong. On the other hand, who as a trader does not know how difficult and reckless trading against the trend as dangerous to hold the position against the obvious signal indicators or published political news. Even more dangerous than categorically deny the existence of trends and signals of the major technical indicators or the fact that the impact on the course selected asset political news.
Let's look at that part of the figure under discussion, where there is a real currency. From its dynamics are clearly visible trends mean duration - the process of pricing is not accidental.
Or is it random? Again we turn to the concept of fractal market [1]. As we have said, a characteristic feature of a fractal of the financial market is the possibility of far from equilibrium, a variety of different situations with the same initial conditions. In each of these situations, the behavior of the market has changed dramatically, in particular, he can go to state in which his behavior better symbolizes something new that has brought the concept of randomness and nonrandomness modern science. Both states - and chance, and not by chance - are coherent. This means that for both states characterized by existing correlations, and the two states in general are unpredictable. Dualism of randomness and nonrandomness suggests that both states are integral components and products of correlated evolutionary processes.
Future in the past
If the past and present financial market can be described in the usual way (say, in the form of trajectories depending on the price and its derivatives from time to time), the evolution of the market allows only a probabilistic description, and the same for all markets, characterized by the same fractal attractor - regardless of the initial conditions in these markets [1].
This fundamental difference in describing the past and the future of the market is an objective in the sense that it is not connected with any level of information support, or possession of virtuosity technical analysis.
It is the existence of every trader in financial markets, characterized by a certain depth of the investment horizon gives crucial every barrier of imperfect mastery of the principles of technical or fundamental analysis.
In theory, efficient market with a random walk of prices we are seeing a normal distribution of our statistically self-similar curves relating probability of price changes on the volatility of the market for various investment horizons. Any other distribution of these curves relates to the nonrandom movement of prices. In reality, we are statistically self-similar curves, which are at best approximate a normal distribution (the stock and currency markets in a small intra-day investment horizons), or far from it (as in the case of money market).
To get around these sharp corners of the processes of random and nonrandom pricing, and introduced the concept of long-range effect [1, 4].
On long-range effect
In the normal probability distribution of price changes on the volatility of the market above the probability is practically zero when volatility is greater than 2 .. So everything that happens in reality in the market with volatility, greater than 2. - Either from evil (for supporters of a random pricing), or a non-random walk of prices. Consequently, the fractal financial market has a lot of traders, which can be divided into two classes: those who blindly believe that the market price of the asset chosen entirely by chance, and those who are convinced of the trends and the ability to predict the evolution of the test asset. This division of market participants, like the classification of traders according to the level of understanding Currency rates investigated. In this case, as is known, traders can be divided into bulls (who believe that the currency is undervalued) and bears (they believe that this tool is overvalued).
For a trader with a shallow insvestitsionnym horizon is not too important dualism random and non-random price movements. More importantly, the million-strong army of traders with similar investment horizon makes extensive use of technical analysis. And this is more than sufficient reason to investigate the price chart. If a large group of traders on the asset has a similar view to its further evolution, it enters into force on the so-called Law reflexivity Soros, on which the study of price chart multimillion army of traders generates self-fulfilling prophecy. In other words, the fragmented nature of the financial market, as it clones the market, which begins to exist at the same time in multiple dimensions of time. Any fluctuation of the market in one dimension may lead to the emergence of a trend in the other, followed by global changes in the market without exception in all of its time slots. In this case we say that the fundamental failed to accidentally (or accidental?) Arising fluctuation and could not return the market to its equilibrium state. As a result, a new state of equilibrium of the market.
Prosperous traders love the trends for their ability to trade on the principle [1]. Even if one of them says he does not believe in technical analysis, while he adds that it is necessary to investigate the price chart to know the driving forces . Perhaps that is why reference points price chart (line of resistance or support, the trend, as well as lines of various shapes TA) usually have a great meaning.
And the last. Trading in some degree a game, casino. Casino for the players has only a single advantage - zero. Falls to zero a negligible probability of 1 / 36. Nevertheless, the casino has a stable and high incomes. Therefore, in the case of trading a slight advantage in understanding the market and its driving forces can enhance the trader. Consequently, the technical analysis and other methods of forecasting the market should be taken seriously, even if you are a supporter of the theory of random walk prices.
What we have on the calendar?
In favor of a stochastic process of pricing in the FOREX market the following facts: the probability distribution of price changes on the volatility of the market is close to normal; made by the author [1] proof of the theorem that the daily market closing price of USD / CHF for the year 1999 was making a Gaussian random walk; trajectory stochastic processes by random number generator, and sometimes resemble the dynamics of the course of an instrument of the market, etc.
It is clear that the absence of a trend - is it a coincidence graph of the probability of price changes on the volatility of the market with a normal distribution. Any deviation from this schedule of a normal distribution throughout the period of the history of prices is usually associated with certain laws governing the dynamics of the test course, that is a non-random process of pricing. I have repeatedly shown that the probability distribution of price changes on the volatility of the market has marked differences from the normal, which is usually neglected in the theory of efficient market [1-4]. Shedding light on this problem can economic calendar. Overlooking news published statistics on the state of the economy of the country under study and its main branches of production gives us serious reason to assume the existence of short-term trends in the foreign exchange market, which can then roll over or amplify the actions of speculators (as the theory of reflexivity Soros), and then the fundamental driving forces.
On the fractality and market efficiency
As is known, the process of pricing in FOREX can be described using the theory of fractal market, which was the logical extension of understanding of the theory of efficient market [1-4]. Recall that in this theory is compared
As the market many investors are involved with different investment horizons, the collapse or panic on one investment horizon will be absorbed and smoothed out by other horizons. Each market participant has its own investment horizon and decides, in accordance with its duration and the expected behavior of the market in the selected time interval.
However, if the market had the same investment horizon, he would become unstable and illiquid. Lack of liquidity in the market creates panic. Thus, the source of liquidity to the market - investors with different investment horizons, different conclusions on technical analysis (or differently interpret fundamental information) and, consequently, have different understandings of the investigated asset prices.
Since market prices are constantly experiencing fluctuations, then, according to Soros, market equilibrium in the life extremely rare [5]. Supply and demand curves correlate NOT only among themselves but with the mentality of market participants, which may, in turn, significantly affect these same curves.
Decisions on purchases or sales are made based on forecasts of future prices, which, oddly enough, is largely determined by these decisions in real time. All this greatly resembles the work of an amplifier with positive feedback. Projections and actions of market participants
Expectations and amplitude fluctuations of prices
The role of expectations in recent years has increased markedly, because traders an opportunity to work with a large banking arm in many market segments. The amplitudes of the fluctuations of prices have increased because of the possibility almost instantly bring to appreciable capital markets and manage
From physics we know that near the equilibrium second law of thermodynamics leads to a gradual decay of fluctuations. The equilibrium system is usually described in terms of averages, because the equilibrium state is stable under various fluctuations and noise, which are constantly outraged by these averages.
And what happens to the fluctuations in the strongly non-equilibrium system? In this system, the fluctuations may cease to be just noise and can be a factor in guiding the global evolution of the system. Near equilibrium, as a rule, cause-effect relationships are working more or less regularly. But the system is significantly deviate from the equilibrium position itself as the cause of evolution becomes a victim of circumstances. In this sluchae we can only deal with probabilities, and no increase in knowledge will not restore the broken chain of causation and to predict what results will come this system.
On the other hand, fluctuations in the prices themselves, at some certain time interval may be the birth of a trend in the other, much smaller time scales. Such a re-nascent trend primknet mass of speculators, open positions on this trend and thus changing the very conditions of supply and demand, which until then relied on the fundamental laws. As a result, the market may become highly non-equilibrium with deviation from the average price of four or more sigma (standard deviations prices investigated currency). In this case, understanding the dynamics of exchange rate movements of the asset is possible only with the positions of the elements of fractal geometry to the analysis of the market.
On the "long memory" of the market
Fractal hypothesis of financial market explains the existence of the financial market of the nonlinear stochastic process. This process, in turn, generates long-range effect - effect
Indeed, the market constantly meet different combinations, proportions and combinations that allow quite successfully to predict the subsequent development of the market, despite the chaotic process of pricing in the shallow investment horizons. I have repeatedly not only demonstrated the existence of long-range effect, but also showed the possibility of measuring its length (including bars). And this - a direct way to test your technical indicators for true and false alarms [1, 4].
The main issue of pricing in the market of FOREX - random whether prices of essential, highly liquid financial instruments? Trader-
How in practice to distinguish between a random walk prices from nonrandom? At first glance, one can conclude that if the market there is a pronounced trend, this is a sign of a non-random price movements. Or, in other words, long-period moving average curves of a random walk of the course of an asset should be placed horizontally, since averaging over a large ensemble of random variables, as a rule, gives zero. But is it really? More precisely we can say that the dynamics of the foreign exchange market from a position trading can be quite random, if past stock price dynamics is close to the trajectory of a series of numbers issued to a random number generator at regular intervals.
About two states
On the Physics Department of Moscow State University I had a printout of several trajectories, modeled in such a generator under the following conditions:
1. The initial number was selected 1.5000, which is comparable with the rate of USD / CHF;
2. The standard deviation of the price of artificial currency is 50 points, which also falls within the range of the real trading market for the USD / CHF.
After a fairly long comparative study of the trajectories obtained with the rate schedules USD / CHF at different time intervals I managed to find a more or less similar pattern (Fig. 1).
Trajectory built random number generator (bottom figure); time schedule rate USD / CHF (top picture). Fig. 1. Trajectory built random number generator (bottom figure); time schedule rate USD / CHF (top picture).
Trajectories plotted random number generator, can be taken for the dynamics of the course of some currencies. If desired, they can see trends, reversal points, cycles and other attributes of the graphs. One trader friend of mine, seeing lower graph in Figure 1, asked what instrument he belongs. In his view, it is easy to sell, as traced a distinct trend, besides the schedule is full reversal pattern and has some strong support levels. A friend was surprised when I told him that this is the trajectory of a random walk. I beg the reader to take another look at the submitted drawing and answer me: is it possible to argue that market trends are present (non-random process of pricing), but on the grounds that they are easy to visually interpret the graphs the price?
Every trader knows how dangerous it is to see trends where there are none, and pick up signals technical indicators - and wrong. On the other hand, who as a trader does not know how difficult and reckless trading against the trend as dangerous to hold the position against the obvious signal indicators or published political news. Even more dangerous than categorically deny the existence of trends and signals of the major technical indicators or the fact that the impact on the course selected asset political news.
Let's look at that part of the figure under discussion, where there is a real currency. From its dynamics are clearly visible trends mean duration - the process of pricing is not accidental.
Or is it random? Again we turn to the concept of fractal market [1]. As we have said, a characteristic feature of a fractal of the financial market is the possibility of far from equilibrium, a variety of different situations with the same initial conditions. In each of these situations, the behavior of the market has changed dramatically, in particular, he can go to state in which his behavior better symbolizes something new that has brought the concept of randomness and nonrandomness modern science. Both states - and chance, and not by chance - are coherent. This means that for both states characterized by existing correlations, and the two states in general are unpredictable. Dualism of randomness and nonrandomness suggests that both states are integral components and products of correlated evolutionary processes.
Future in the past
If the past and present financial market can be described in the usual way (say, in the form of trajectories depending on the price and its derivatives from time to time), the evolution of the market allows only a probabilistic description, and the same for all markets, characterized by the same fractal attractor - regardless of the initial conditions in these markets [1].
This fundamental difference in describing the past and the future of the market is an objective in the sense that it is not connected with any level of information support, or possession of virtuosity technical analysis.
It is the existence of every trader in financial markets, characterized by a certain depth of the investment horizon gives crucial every barrier of imperfect mastery of the principles of technical or fundamental analysis.
In theory, efficient market with a random walk of prices we are seeing a normal distribution of our statistically self-similar curves relating probability of price changes on the volatility of the market for various investment horizons. Any other
To get around these sharp corners of the processes of random and nonrandom pricing, and introduced the concept of long-range effect [1, 4].
On long-range effect
In the normal probability distribution of price changes on the volatility of the market above the probability is practically zero when volatility is greater than 2 .. So everything that happens in reality in the market with volatility, greater than 2. - Either from evil (for supporters of a random pricing), or a non-random walk of prices. Consequently, the fractal financial market has a lot of traders, which can be divided into two classes: those who blindly believe that the market price of the asset chosen entirely by chance, and those who are convinced of the trends and the ability to predict the evolution of the test asset. This division of market participants, like the classification of traders according to the level of understanding
For a trader with a shallow insvestitsionnym horizon is not too important dualism random and non-random price movements. More importantly, the million-strong army of traders with similar investment horizon makes extensive use of technical analysis. And this is more than sufficient reason to investigate the price chart. If a large group of traders on the asset has a similar view to its further evolution, it enters into force on the so-called Law reflexivity Soros, on which the study of price chart multimillion army of traders generates self-fulfilling prophecy. In other words, the fragmented nature of the financial market, as it clones the market, which begins to exist at the same time in multiple dimensions of time. Any fluctuation of the market in one dimension may lead to the emergence of a trend in the other, followed by global changes in the market without exception in all of its time slots. In this case we say that the fundamental failed to accidentally (or accidental?) Arising fluctuation and could not return the market to its equilibrium state. As a result, a new state of equilibrium of the market.
Prosperous traders love the trends for their ability to trade on the principle
And the last. Trading in some degree a game, casino. Casino for the players has only a single advantage - zero. Falls to zero a negligible probability of 1 / 36. Nevertheless, the casino has a stable and high incomes. Therefore, in the case of trading a slight advantage in understanding the market and its driving forces can enhance the trader. Consequently, the technical analysis and other methods of forecasting the market should be taken seriously, even if you are a supporter of the theory of random walk prices.
What we have on the calendar?
In favor of a stochastic process of pricing in the FOREX market the following facts: the probability distribution of price changes on the volatility of the market is close to normal; made by the author [1] proof of the theorem that the daily market closing price of USD / CHF for the year 1999 was making a Gaussian random walk; trajectory stochastic processes by random number generator, and sometimes resemble the dynamics of the course of an instrument of the market, etc.
It is clear that the absence of a trend - is it a coincidence graph of the probability of price changes on the volatility of the market with a normal distribution. Any deviation from this schedule of a normal distribution throughout the period of the history of prices is usually associated with certain laws governing the dynamics of the test course, that is a non-random process of pricing. I have repeatedly shown that the probability distribution of price changes on the volatility of the market has marked differences from the normal, which is usually neglected in the theory of efficient market [1-4]. Shedding light on this problem can economic calendar. Overlooking news published statistics on the state of the economy of the country under study and its main branches of production gives us serious reason to assume the existence of short-term trends in the foreign exchange market, which can then roll over or amplify the actions of speculators (as the theory of reflexivity Soros), and then the fundamental driving forces.
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