Are currency markets random?

[dbell]

Originally Posted by Gamma_Jammer

A few examples;

Central bank intervention in the markets at certain levels;

Daily fixing trades (particularly the midday (London time) Frankfurt fix and the 1600 (again Ldn time)WMR fix)

Daily and weekly squaring up activity (watch how often after a big move on a friday (e.g. payrolls related move), the U.S. evening session will show a steady move the other way, as bank spot desks, futures punters and other short term names square up ahead of the weekend. You also often get movement when the US stock markets open and close (less pronounced than it was a few years ago though).

I could probably list more, but hope that these few have demonstrated my point.

GJ

Could you please explain what these are and maybe point out a few more also?

Thanks

[Gamma_Jammer]

Originally Posted by dbell

Could you please explain what these are and maybe point out a few more also?

Thanks

OK I'll try and very very briefly explain the examples I've already listed, but don't really have time to list a load more I'm afraid.

1) Central Bank Intervention;

The central banks of many countries are active in the foreign exchange markets, both to manage the size and diversity of their foreign currency reserves, and to dampen down excessive liquidity in their own currencies. Most visible amongst these is the BoJ, who have often over the past few years been very aggressive buyers of USD/JPY whenever the yen looks like it's getting too strong (in the eyes of the Japanese MoF). As this is often at or near the same levels time and time again, this activity is imho arguably non-random.

2) Fixing Trades;

There is a growing use of pre determined times to execute larger trades. Several services exist to provide a 'benchmark' rate at a certain time each day, and a customer with business to transact that requires a clear audit trail showing how the price was arrived at can choose to ask their bank to execute this trade 'for the fix'. This means that the Bank in question undertakes to do the trade with their customer at the fix rate (sometimes with a spread built in, sometimes not). Obviously, if the order is a very large one, the bank is liable to start executing the business in the market a little earlier, in order to complete the trade at or near fix time. e.g. for a large EUR/USD sell order, if, for example the EUR/USD market is at 1.2050 when the bank is given the fix order, and is at 1.2000 whe the fix is published, the bank will hope to have sold Euros from 1.2050 all the way down to 1.2000, rather than scrambling to sell the Euros immediately prior to the fix. Obviously this raises a potential conflict of interest for the bank, as the lower it can drive the market at fix time, the more money it will make. Thus fixing times can be a little volatile, as the banks will attempt to quickly push the market in their favour right before the fix. Main fix times for London traders are 12:00 (Frankfurt Fix), 13:15 (ECB Fix) and 16:00 (WM Reuters Fix). In my experience, corporate customers often favour the FFT fix, while institutional names favour the WM fix (for reasons not worth delving into here). No-one likes the ECB fix as the rates are too volatile relative to where the market actually is at 13:15, for structural reasons. Note all times are London time. Again, I think there's a good case to be made for this constituting non-random activity.

3) Squaring up;

Simple really, if there's been a big afternoon move (particularly on a Friday or before a holiday) then many people will square their positions prior to London, or often NY closing. This particularly applies to bank spot desks, many of whose traders do not always run overnight positions. Thus there is often a little counter-move prior to the close. Again, I think this is far from random.

Hope this clarifies a little. They were the best three examples I could think of at the time but I'm sure I could drum up more if I could be bothered. But I can't. ;-)

GJ

[dbell]

Thanks for the explanation GJ !

[Gamma_Jammer]

No problem. Sorry it wasn't as brief as I had promised, but there's not really a shorter way to explain fixings to people who haven't seen them, without leaving out why they are worth being aware of.

Good luck.

GJ

[slope30]

Originally Posted by tommyfx

slope30,

I have heard of J-charts although i don't have "extensive use of them", in fact my only contact i've had with them is general research into trading.
They do work partly on the theory that the markets have random elements (when the herd mentality forces people to aggressively buy/sell a price and greed and fear take away the hunt for fair value making price movement impossible to predict) this is my interpretation of the following extract from a trading encyclopedia on J-charts,

"Price Forecasting
J-Chart treats markets as energetic systems, thereby giving us a new way of looking at them. It is designed to help the trader decide when markets are in equilibrium and when they are not. The closer the price action comes to filling a perfect isosceles triangle in a given period (turned on its end), the more it is in equilibrium.

If markets were efficient, they would also be logical. But as any trader knows, markets are neither totally efficient nor totally logical. The reason is simple: markets are prone to the herd mentality. Herds rarely move efficiently, and they are certainly not driven by rational logic. They are more likely to vacillate between periods of greed (when prices are driven up in the rush as people buy not wanting to miss out) and periods of fear (when people realize they got carried away)."

Looking for equilibrium after periods of greed or fear? (an aspect of supply and demand, which wouldn't be present in a random market, surely?) Seems to me this is a way of finding levels when the market is overbought or oversold, which again is a concept a random market wouldn't understand.

As for your second question, what system am i using, it is a trend following system, on an hourly chart, its really very simple, based around moving averages, pull up an hourly chart and find an indicator/s settings that allow you to enter a trade "near" the begining and exit "near" the end of a trend and you will do just fine, too many people become obsessed with predicting the market and catching every pip a trend has to offer. From my experience getting 50% of a trend 90% of the time is far better that getting 100% of the trend 10% of the time.

Good luck,

Tom

Thanks for the info. I will put that to use. -B

[TraderABC]

Originally Posted by Gamma_Jammer

OK I'll try and very very briefly explain the examples I've already listed, but don't really have time to list a load more I'm afraid.

1) Central Bank Intervention;

The central banks of many countries are active in the foreign exchange markets, both to manage the size and diversity of their foreign currency reserves, and to dampen down excessive liquidity in their own currencies. Most visible amongst these is the BoJ, who have often over the past few years been very aggressive buyers of USD/JPY whenever the yen looks like it's getting too strong (in the eyes of the Japanese MoF). As this is often at or near the same levels time and time again, this activity is imho arguably non-random.

Question is. How can you predict when CB will shift there rate? Which levels for Yen are you talking about? And just because they have done somethings in the past it does not guarantee that they will continue to do this again and again. Plus this event probably happens so infrequently that it is not of big use to a small speculator and can be very dangerous since brokers don't honour stop losess anymore..

2) Fixing Trades;
There is a growing use of pre determined times to execute larger trades. Several services exist to provide a 'benchmark' rate at a certain time each day, and a customer with business to transact that requires a clear audit trail showing how the price was arrived at can choose to ask their bank to execute this trade 'for the fix'. This means that the Bank in question undertakes to do the trade with their customer at the fix rate (sometimes with a spread built in, sometimes not). Obviously, if the order is a very large one, the bank is liable to start executing the business in the market a little earlier, in order to complete the trade at or near fix time. e.g. for a large EUR/USD sell order, if, for example the EUR/USD market is at 1.2050 when the bank is given the fix order, and is at 1.2000 whe the fix is published, the bank will hope to have sold Euros from 1.2050 all the way down to 1.2000, rather than scrambling to sell the Euros immediately prior to the fix. Obviously this raises a potential conflict of interest for the bank, as the lower it can drive the market at fix time, the more money it will make. Thus fixing times can be a little volatile, as the banks will attempt to quickly push the market in their favour right before the fix. Main fix times for London traders are 12:00 (Frankfurt Fix), 13:15 (ECB Fix) and 16:00 (WM Reuters Fix). In my experience, corporate customers often favour the FFT fix, while institutional names favour the WM fix (for reasons not worth delving into here). No-one likes the ECB fix as the rates are too volatile relative to where the market actually is at 13:15, for structural reasons. Note all times are London time. Again, I think there's a good case to be made for this constituting non-random activity.

Could you please explain how specifically this can be used for trading purposes on Forex and any gurantee that this will last in the future rather than the past?

3) Squaring up;

Simple really, if there's been a big afternoon move (particularly on a Friday or before a holiday) then many people will square their positions prior to London, or often NY closing. This particularly applies to bank spot desks, many of whose traders do not always run overnight positions. Thus there is often a little counter-move prior to the close. Again, I think this is far from random.

Hope this clarifies a little. They were the best three examples I could think of at the time but I'm sure I could drum up more if I could be bothered. But I can't. ;-)
GJ

Is this something like in the europian session Euro is traded one way and during NY session it reverses? I've noticed that a bit but unfortunately it doesn't work consistently and many things are still in the land of probabilities, luck, chance and uncertainty...

[Gamma_Jammer]

Originally Posted by TraderABC

Question is. How can you predict when CB will shift there rate? Which levels for Yen are you talking about? And just because they have done somethings in the past it does not guarantee that they will continue to do this again and again. Plus this event probably happens so infrequently that it is not of big use to a small speculator and can be very dangerous since brokers don't honour stop losess anymore..



Could you please explain how specifically this can be used for trading purposes on Forex and any gurantee that this will last in the future rather than the past?




Is this something like in the europian session Euro is traded one way and during NY session it reverses? I've noticed that a bit but unfortunately it doesn't work consistently and many things are still in the land of probabilities, luck, chance and uncertainty...

Blimey - don't want much, do you? ;-)

Sorry TraderABC but I simply can't answer all those questions concisely enough to fit in here. No one can tell you every thing you need to simply make millions overnight. I am merely passing on what I have seen while I have been involved in the markets. Stuff like this you kind of have to pick up over the years.

But just because I can't spoon feed you guaranteed levels at which to buy USD/JPY for zero risk, doesn't mean that the stuff I am talking about isn't valid. Ask around if you like. I haven't said anything that you won't find from any other experienced bank / hedge fund / cta trader.

Sorry I can't be more specific, but I'd still be typing next week.

GJ

p.s. one thing you should consider - something doesn't have to happen CONSISTENTLY to be non-random, just more (or less) frequently than would be expected by blind chance, preferably for some demonstrably external reason. Just because you don't see the 'squaring up factor' working all the time, doesn't mean markets behave randomly on a Friday afternoon after a big move. In my opinion they don't.

[4xis2ez]

No, markets are not random. Check out this link, Delta Society. Markets follow a fixed pattern based partly on certain multiples of lunar months and other time frames. The web site above is scientifically interesting but it is not useful for trading purposes as the patterns are too innaccurate for making trade decisions. I do not endorse buying the Delta book, it will not help you trade. Apparently, there are forces which are not understood that actualy influence everything on earth, even the markets.