Thread: Statistical mean of the market [quant corner]

Originally Posted by ;

As the FED printed a lot of dollars and devaluated the USD to pay back the debt, another CB's have had to devaluate it to keep the market in balance, so this is possibly the most important reason the FX market has expansion to 8 trillion, and not because Joe the normal trader discovered FX trading out of Google Ads... So probably later on I'll be looking further into the economic mechanism behind the market, because it makes more sense than to suppose that the probabilities.

The loudness of the FX market is 5 trillion (not 8), not the sum of money.

When I've 1 USD and you Prox have 1 EUR, and we exchange them , we've only done 1 device VOLUME of EUR/USD trading. But we could do this swap ten times in the moment. In that case, that the VOLUME will be 10 units EUR/USD. Notice that we have 1 USD and 1 EUR, nevertheless the VOLUME is 10 times greater.

Therefore the loudness of the FX market is regarding the frequency of trading (money velocity), not to the quantity of money.

That is great. More VOLUME means more sound, which means more inefficiencies to exchange and exploit. Noise is great, unlike what most retailers believe.

And yes, you should look into the economics behind the market, or more exactly at its construction and micro-structure. Then you will go beyond trying naive methods like a simple EMA great over 15 years and get to the actual advantages.

Originally Posted by ;

quote The loudness of the FX market is 5 trillion (not 8), not the AMOUNT OF MONEY. When I and you have 1 USD and 1 EUR, respectively, and we swap them , we've just done 1 unit VOLUME of trading. But we could do this swap ten occasions. In that circumstance, the VOLUME will be 10 units EUR/USD. Notice that we have 1 USD and 1 EUR, yet the VOLUME is 10 times greater. So the loudness of the FX market is regarding the frequency of trading (money velocity), as well as the amount of cash. This is great. More VOLUME means more sound, which...

Ok then, I perplexed the volume with the market cap. Anyway the volume only causes volatility, however the price is I think characterized by the market cap of each separate currency.I've looked into fundamental analysis, and tried to measure it but using less sucess. I've measured interest rates, money supply, GDP, inflation, unemployment, etc, and it didnt give me anything better than analysis. But nevertheless I will look into it ...

by way of example if I got 2 cows and you have 1 cow, we assign a currency (that is just a representation of wealth) to it, my 2 cows will be worth 1 P and yours will be worth 1 A



Like this, this is how supply demand relates to the currencies. Replace the P currency with Eur along with the A currency with Usd along with the cows market and there your obtained the EUR/USD market explained in summary.

Originally Posted by ;

Just replace the P currency with Eur along with the A currency with Usd along with the cows with both individual countries economy and there your obtained the EUR/USD market explained in a nutshell.

Not really.

As they say, the market can stay irrational longer you can stay solvent.

Ie: the bunny can die, but the currency could not drop and in fact it could increase because for example someone else who holds it launches a rumor that you've got 10 more hidden cows.

Originally Posted by ;

quote More VOLUME means more noise, meaning more inefficiencies to trade and exploit. Noise is good, unlike what the majority of retailers believe.

Can you to expand on that comment? I agree with you. Not asking that you give away too much, simply eager to learn any hints you may have about how to exploit it.

Thank you.

Noise means that the coastal span of the market is longer.

If EUR/USD would proceed at a strictly linear rate, with 0 retrace, from 1.28 to 1.25, it is possible to make 300 pips. However, if after each 100 pips it retraces 50, it is possible to make 300 (original transfer ) (50 retrace 50 restart tendency ) (50 retrace 50 restart tendency ) = 500 pips. The noise, the more pips you'll be able to extract from the market.

That explains why HFT is indeed profitable, because with a two pip ruler, the coastal span is reaaaaaally long - the transfer from 1.28 to 1.25 would probably have over 2000 pips when using a two pip ruler.

How does that help one? If you would like to create 100 pips, you need to ch 30 percent of the transfer from 1.28 to 1.25 should you just do one trade. But should you exchange the 2000 pips coastal span, you need to ch just 5% of that to create your 100 pips. So you can snipe your entries better, and enter a whole lot more favorable situations.

Originally Posted by ;

More noise means. . . .

Thank you a great answer.

Hi PipMeUp, I have concerns for those who dont mind answering:

You mentioned about this:
The only thing I could predict was a smoothed variant of the RSI 3 pubs beforehand (with a AR(2) process). I favor using ML to estimate the market. The tendency for example. However, it does not predict a change in trend.

What is ML ?
What's the setting for RSI?
What's AR(2) process?

Hope that you dont mind describing.
thanks Bro