General Trading Discussion Digest for Thursday September 21, 2017

1 new thread and 7 replies from 5 authors in the "General Trading Discussion" community ... I have been a little bemused by some of James' recent clarifications: Studies have shown that popular tools are not predictive. They may have... [Complete Currency Trader]() [General Trading Discussion]( [Post New Message](mailto:COMPLETECURRENCYTRADER-generaltradingdiscussion@ConnectedCommunity.org) [] Sep 21, 2017 started 19 hours ago, [Michael King]( (5 replies) [Predictive or Indicative?]( [external link to thread view]( 1. [I have been a little bemused by some of James'...](#m0) Michael King 2. [Great questions and discussion Michael. I...](#m1) James Edward 3. [Thanks James, for such a prompt and...](#m2) Michael King 4. [Although my believe in S&R was rather high in...](#m3) Anush Mohafez 5. [Yes, the self fulfilling prophecy argument...](#m4) James Edward 6. [Based on the 2013 triennial figures of the BIS ...](#m5) Anush Mohafez started 2 days ago, [Robert]( (3 replies) [pips vs points]( [external link to thread view]( 7. [Thank you Betty. It clears the fog since I have...](#m6) Robert 8. [A "Tick" is the 5th decimal place to the right...](#m7) Jim - [] [top](#toca) [next](#m1) 1. [Predictive or Indicative?]( [Reply to Group](mailto:COMPLETECURRENCYTRADER_generaltradingdiscussion_e68789be-67f4-4879-9163-3857585907e5@ConnectedCommunity.org?subject=Re: Predictive or Indicative) [Reply to Sender]( [Michael King]( Sep 21, 2017 5:00 AM [Michael King]( I have been a little bemused by some of James' recent clarifications: Studies have shown that popular tools are not predictive. They may have value but they are not predictive. Would it be true to say that such tools and indicators may 'indicate'  where price is more likely to go but technically they are not predictive by definition? Perhaps I can give an example - Although I don't believe Divergence was alluded to, I will hazard a guess and assume 'studies' have proven that Divergence is not predictive. I trade a strategy however, that relies heavily on Divergence and is 70% successful, and in the 30% of cases where price completely ignores the Divergence, the next instance of Divergence is invariably successful. There are one or two other factors involved in the strategy but Divergence is the main factor. Many traders have been trading this system with very similar results over many years. I don't know if any studies have been conducted on Divergence or what the criteria of the analysis would be. But if you back tested  every instance of Divergence it is very likely that the results would indicate that Divergence alone is of no practical use at all in predicting direction. Would the Study however, take into account that you need to wait for a break of trendline after Divergence, in which case  there is a very high probability that price will move in the direction of  that break. I would consider that to be predictive but perhaps I should use the word 'indicative'? James did definitely refer to Support and Resistance as being non predictive and that really caught my attention. But he didn't say they were insignificant The usual belief which may be considered a 'myth' is that 'Support becomes Resistance' and vice versa. I have found this to be true more often than not and  whenever I have traded into nearby major support or resistance it has not usually worked out well. So would I be right in thinking that even if not predictive, major levels of support and resistance are highly significant and are best not ignored? or do studies show that they can be ignored with impunity? Sorry if I appear somewhat obtuse on this.  I would just appreciate a little clarification and am certainly not courting controversy. ------------------------------ Michael King ------------------------------ [Reply to Group Online]( [View Thread]( [Recommend]( [Forward]( [] [top](#toca) [previous](#m0) [next](#m2) 2. [Re: Predictive or Indicative?]( [Reply to Group](mailto:COMPLETECURRENCYTRADER_generaltradingdiscussion_0de5161e-91e2-48ef-b0a2-0f6403e17a86@ConnectedCommunity.org?subject=Re: Predictive or Indicative) [Reply to Sender]( [James Edward]( Sep 21, 2017 5:48 AM [James Edward]( Great questions and discussion Michael. I think there can be confusion about semantics. Are certain conditions/patterns predictive or indicative? For me personally, I try to avoid talking about prediction because to most amateur traders, prediction often means certainty. They mistake the idea of being able to predict something with 60% probability as meaning it is certain to happen. Look at the Trump election... Experts were suggesting Trump had only a 30% chance of wining and 70% chance of failing. Most people took that to mean he had no chance of winning and that the experts got it wrong. No they didn't, they got it right. The prediction was probabilistic not certain. So that's why I avoid the term as much as I can. Indicative for me makes much more sense and I think helps more people accept what is really happening. Now are some indicators predictive/indicative in a probabilistic way? Yes. However, most people are not using indicators of any value, and those who are achieving success with an indicator, may be (usually are) attributing their success incorrectly to the indicator and ignoring the other factors. I'll use your example of divergence. You said it works 70% of the time and only has a couple of other minor factors involved. But is it actually the combination of all factors that really provide the edge, rather than the divergence itself? My style for example relies on strength v weakness. Is that my edge? No. I also rely on momentum. Is that my edge? No. I also rely on liquidity. Is that my edge? No I also rely on Volume. Is that my edge? No. Strength v weakness is perhaps 90% of where my edge lays and that is my "big" thing, but it is only when ALL the factors come together and are aligned, that I have a reliable edge. And actually, as I will post further down this, the real edge behind all of it, actually comes down to liquidity imbalance. Strength and weakness is the best indicator or where the liquidity imbalance is, and so I rely on strength and weakness more than anything else as my primary indicator, but the true edge that triggers everything is liquidity imbalance at the depth of market. Now to support and resistance. In forex, it is a myth. Completely and utterly in all forms. This, and everything else has to come down to what is actually going on in the market at a mechanical level. Forget charts. Charts display price changes. They say nothing about how the market works, or why a price changed, how, who changed it, or why. If anything is predictive or indicative, or has any meaning, it has to be relevant to the market mechanics. So what is support or resistance? I mean what is happening in the market...not what does it look like on a chart. What orders have to exist for support or resistance to exist and who has placed those orders and why? You should ask the same question for everything you see in the market. I'm going to copy some text taken from a video I put out this week as part of the cybernetics course. Hopefully this will put some of this in to perspective: Fundamentally, all markets are the same. There's a product, and there are people buying and selling that product. However, despite that fundamental sameness, every market is different. They each have their own rules, characteristics, etiquette's, and structures. Different people participate in each market, and people have very different reasons for participating in each market. A farmer's livestock market and Southeby's are both auction market places, but they are very different in the way they operate and why they exist. In trading, most people confuse markets with charts. But a chart just shows you changes to the price of the underlying product. That's all. It tells you absolutely nothing about why the price changed, or who caused it to change, or whether it is likely to change again in the future. My wife went to a livestock market last year with a farmer neighbour of ours, and she nearly bought a cow by mistake. She rubbed her nose without realising at that market, that was a gesture to signal a bid. When the auctioneer pointed to her to confirm her bid, she panicked and raised her hand to say that she wasn't participating, and that was considered a gesture to increase the bid increment by a factor of 5. Her friend had to quickly tell her to stand perfectly still and not do another thing. The friend on the other hand, was an expert. They bid on certain cattle and not others tactically depending on who else was trying to buy, how many people were competing, what time of day it was and how many cattle were left, who was selling and how much had already been sold, and so on. Our friend understood the market dynamics and operated like a pro. The same thing happens in financial markets, and most traders are totally clueless. They don't even realise what mistakes they're making, because they have no idea about the unique and intricate mechanics of the particular market they're involved in. A system is basically a framework that gives you a methodical strategy for tactically participating in the market. Let's just call it a set of rules or instructions for how to behave. For a system to be of any use, it has to be relevant to the market. If my wife's friend wrote down a set of instructions on how to buy a cow at the local cattle market, and I tried to use that to buy a Ming vase at Sotheby's auction house in Manhattan, it's not going to work. If a highly successful and famous trader has developed a system (a set of rules or instructions) to help him tactically participate in the pork bellies futures market, that has got absolutely no relevance to the spot forex market. None at all. The same as a system designed for use in the Dow Jones has no relevance to the copper market. The charts from all those markets will look the same because all charts display price changes; but why the price changed and how, will be different from one market to the next depending on why that market exists and who's participating in it and what their objectives are. And don't forget Apophenia and memory recall. We see patterns where none exist and give meaning to meaningless data. All humans do this. And then to reinforce how things "appear" we remember all the times it worked as we expect and forget all the times it didn't. If anything is predictive/indicative, it has to be relevant to the market mechanics and be nothing to do with a chart. What orders are in the market and why or how can those orders influence the future? In an auction market like forex, liquidity imbalances can predict the future price movement with up to 80% accuracy over a distance of 10 pips or so, or a time frame 7 to 10 seconds. Stanford university proved this. That's all down to market mechanics. No one has ever proved anything like that with patterns on a chart....because charts are not markets. I'm in danger of sounding confrontational.... I'm just rushing to get you a reply and add to the discussion before I head out in the next 10 minutes. Please come back to me with more questions, or challenge me on anything you disagree with or don't understand my point on. You've brought up a really valuable topic here. ------------------------------ James Edward London ------------------------------ [Reply to Group Online]( [View Thread]( [Recommend]( [Forward]( ------------------------------------------- Original Message: Sent: 09-21-2017 05:00 From: Michael King Subject: Predictive or Indicative? I have been a little bemused by some of James' recent clarifications: Studies have shown that popular tools are not predictive. They may have value but they are not predictive. Would it be true to say that such tools and indicators may 'indicate'  where price is more likely to go but technically they are not predictive by definition? Perhaps I can give an example - Although I don't believe Divergence was alluded to, I will hazard a guess and assume 'studies' have proven that Divergence is not predictive. I trade a strategy however, that relies heavily on Divergence and is 70% successful, and in the 30% of cases where price completely ignores the Divergence, the next instance of Divergence is invariably successful. There are one or two other factors involved in the strategy but Divergence is the main factor. Many traders have been trading this system with very similar results over many years. I don't know if any studies have been conducted on Divergence or what the criteria of the analysis would be. But if you back tested  every instance of Divergence it is very likely that the results would indicate that Divergence alone is of no practical use at all in predicting direction. Would the Study however, take into account that you need to wait for a break of trendline after Divergence, in which case  there is a very high probability that price will move in the direction of  that break. I would consider that to be predictive but perhaps I should use the word 'indicative'? James did definitely refer to Support and Resistance as being non predictive and that really caught my attention. But he didn't say they were insignificant The usual belief which may be considered a 'myth' is that 'Support becomes Resistance' and vice versa. I have found this to be true more often than not and  whenever I have traded into nearby major support or resistance it has not usually worked out well. So would I be right in thinking that even if not predictive, major levels of support and resistance are highly significant and are best not ignored? or do studies show that they can be ignored with impunity? Sorry if I appear somewhat obtuse on this.  I would just appreciate a little clarification and am certainly not courting controversy. ------------------------------ Michael King ------------------------------ [] [top](#toca) [previous](#m1) [next](#m3) 3. [Re: Predictive or Indicative?]( [Reply to Group](mailto:COMPLETECURRENCYTRADER_generaltradingdiscussion_5159e28e-3a65-4c70-852c-64bf29df5471@ConnectedCommunity.org?subject=Re: Predictive or Indicative) [Reply to Sender]( [Michael King]( Sep 21, 2017 6:41 AM [Michael King]( Thanks James, for such a prompt and comprehensive reply, I watched the video last night about how Mrs. Edward almost bought a cow through not fully understanding the mechanics of the cattle auction. You certainly cleared up my main point which was simply semantics, there are no magic indicators or patterns, only an edge which as you rightly say is probabilistic. Regarding Support and Resistance,  yes I get they are just representations on a chart My belief so far about S/R and especially Fibonacci, isn't that they are significant in themselves, ( Fib 50 isn't even a Fib number) but that they are viewed as significant which can make them become a self fulfilling prophecy, surely like 'key' Moving Averages, whether the traders understand the underlying mechanics or not. But 80% of trading volume being purely utilitarian does sort of debunk that notion. So plenty of food for thought, particularly with regard to imbalance Thanks again for such a prompt reply ------------------------------ Michael King ------------------------------ [Reply to Group Online]( [View Thread]( [Recommend]( [Forward]( ------------------------------------------- Original Message: Sent: 09-21-2017 05:48 From: James Edward Subject: Predictive or Indicative? Great questions and discussion Michael. I think there can be confusion about semantics. Are certain conditions/patterns predictive or indicative? For me personally, I try to avoid talking about prediction because to most amateur traders, prediction often means certainty. They mistake the idea of being able to predict something with 60% probability as meaning it is certain to happen. Look at the Trump election... Experts were suggesting Trump had only a 30% chance of wining and 70% chance of failing. Most people took that to mean he had no chance of winning and that the experts got it wrong. No they didn't, they got it right. The prediction was probabilistic not certain. So that's why I avoid the term as much as I can. Indicative for me makes much more sense and I think helps more people accept what is really happening. Now are some indicators predictive/indicative in a probabilistic way? Yes. However, most people are not using indicators of any value, and those who are achieving success with an indicator, may be (usually are) attributing their success incorrectly to the indicator and ignoring the other factors. I'll use your example of divergence. You said it works 70% of the time and only has a couple of other minor factors involved. But is it actually the combination of all factors that really provide the edge, rather than the divergence itself? My style for example relies on strength v weakness. Is that my edge? No. I also rely on momentum. Is that my edge? No. I also rely on liquidity. Is that my edge? No I also rely on Volume. Is that my edge? No. Strength v weakness is perhaps 90% of where my edge lays and that is my "big" thing, but it is only when ALL the factors come together and are aligned, that I have a reliable edge. And actually, as I will post further down this, the real edge behind all of it, actually comes down to liquidity imbalance. Strength and weakness is the best indicator or where the liquidity imbalance is, and so I rely on strength and weakness more than anything else as my primary indicator, but the true edge that triggers everything is liquidity imbalance at the depth of market. Now to support and resistance. In forex, it is a myth. Completely and utterly in all forms. This, and everything else has to come down to what is actually going on in the market at a mechanical level. Forget charts. Charts display price changes. They say nothing about how the market works, or why a price changed, how, who changed it, or why. If anything is predictive or indicative, or has any meaning, it has to be relevant to the market mechanics. So what is support or resistance? I mean what is happening in the market...not what does it look like on a chart. What orders have to exist for support or resistance to exist and who has placed those orders and why? You should ask the same question for everything you see in the market. I'm going to copy some text taken from a video I put out this week as part of the cybernetics course. Hopefully this will put some of this in to perspective: Fundamentally, all markets are the same. There's a product, and there are people buying and selling that product. However, despite that fundamental sameness, every market is different. They each have their own rules, characteristics, etiquette's, and structures. Different people participate in each market, and people have very different reasons for participating in each market. A farmer's livestock market and Southeby's are both auction market places, but they are very different in the way they operate and why they exist. In trading, most people confuse markets with charts. But a chart just shows you changes to the price of the underlying product. That's all. It tells you absolutely nothing about why the price changed, or who caused it to change, or whether it is likely to change again in the future. My wife went to a livestock market last year with a farmer neighbour of ours, and she nearly bought a cow by mistake. She rubbed her nose without realising at that market, that was a gesture to signal a bid. When the auctioneer pointed to her to confirm her bid, she panicked and raised her hand to say that she wasn't participating, and that was considered a gesture to increase the bid increment by a factor of 5. Her friend had to quickly tell her to stand perfectly still and not do another thing. The friend on the other hand, was an expert. They bid on certain cattle and not others tactically depending on who else was trying to buy, how many people were competing, what time of day it was and how many cattle were left, who was selling and how much had already been sold, and so on. Our friend understood the market dynamics and operated like a pro. The same thing happens in financial markets, and most traders are totally clueless. They don't even realise what mistakes they're making, because they have no idea about the unique and intricate mechanics of the particular market they're involved in. A system is basically a framework that gives you a methodical strategy for tactically participating in the market. Let's just call it a set of rules or instructions for how to behave. For a system to be of any use, it has to be relevant to the market. If my wife's friend wrote down a set of instructions on how to buy a cow at the local cattle market, and I tried to use that to buy a Ming vase at Sotheby's auction house in Manhattan, it's not going to work. If a highly successful and famous trader has developed a system (a set of rules or instructions) to help him tactically participate in the pork bellies futures market, that has got absolutely no relevance to the spot forex market. None at all. The same as a system designed for use in the Dow Jones has no relevance to the copper market. The charts from all those markets will look the same because all charts display price changes; but why the price changed and how, will be different from one market to the next depending on why that market exists and who's participating in it and what their objectives are. And don't forget Apophenia and memory recall. We see patterns where none exist and give meaning to meaningless data. All humans do this. And then to reinforce how things "appear" we remember all the times it worked as we expect and forget all the times it didn't. If anything is predictive/indicative, it has to be relevant to the market mechanics and be nothing to do with a chart. What orders are in the market and why or how can those orders influence the future? In an auction market like forex, liquidity imbalances can predict the future price movement with up to 80% accuracy over a distance of 10 pips or so, or a time frame 7 to 10 seconds. Stanford university proved this. That's all down to market mechanics. No one has ever proved anything like that with patterns on a chart....because charts are not markets. I'm in danger of sounding confrontational.... I'm just rushing to get you a reply and add to the discussion before I head out in the next 10 minutes. Please come back to me with more questions, or challenge me on anything you disagree with or don't understand my point on. You've brought up a really valuable topic here. ------------------------------ James Edward London ------------------------------ Original Message: Sent: 09-21-2017 05:00 From: Michael King Subject: Predictive or Indicative? I have been a little bemused by some of James' recent clarifications: Studies have shown that popular tools are not predictive. They may have value but they are not predictive. Would it be true to say that such tools and indicators may 'indicate'  where price is more likely to go but technically they are not predictive by definition? Perhaps I can give an example - Although I don't believe Divergence was alluded to, I will hazard a guess and assume 'studies' have proven that Divergence is not predictive. I trade a strategy however, that relies heavily on Divergence and is 70% successful, and in the 30% of cases where price completely ignores the Divergence, the next instance of Divergence is invariably successful. There are one or two other factors involved in the strategy but Divergence is the main factor. Many traders have been trading this system with very similar results over many years. I don't know if any studies have been conducted on Divergence or what the criteria of the analysis would be. But if you back tested  every instance of Divergence it is very likely that the results would indicate that Divergence alone is of no practical use at all in predicting direction. Would the Study however, take into account that you need to wait for a break of trendline after Divergence, in which case  there is a very high probability that price will move in the direction of  that break. I would consider that to be predictive but perhaps I should use the word 'indicative'? James did definitely refer to Support and Resistance as being non predictive and that really caught my attention. But he didn't say they were insignificant The usual belief which may be considered a 'myth' is that 'Support becomes Resistance' and vice versa. I have found this to be true more often than not and  whenever I have traded into nearby major support or resistance it has not usually worked out well. So would I be right in thinking that even if not predictive, major levels of support and resistance are highly significant and are best not ignored? or do studies show that they can be ignored with impunity? Sorry if I appear somewhat obtuse on this.  I would just appreciate a little clarification and am certainly not courting controversy. ------------------------------ Michael King ------------------------------ [] [top](#toca) [previous](#m2) [next](#m4) 4. [Re: Predictive or Indicative?]( [Reply to Group](mailto:COMPLETECURRENCYTRADER_generaltradingdiscussion_4298c6ba-2299-4b9f-b814-538df08c2222@ConnectedCommunity.org?subject=Re: Predictive or Indicative) [Reply to Sender]( [Anush Mohafez]( Sep 21, 2017 8:17 AM [Anush Mohafez]( Although my believe in S&R was rather high in the beginning, ones I realized that prices may change to no business taken place in the underlying asset itself (among other correlation, especially the triangular correlation within FX auction market) in combination with so many traders trading with different backgrounds, strategies, time frames, EA's, indicators, psyches to name a few qualities only, S&R just makes no sense at all in terms of being indicative.  I agree that looking backwards it sometimes looks like there is clearly a resistance or support level in one or the other time frame, however, ones you become very clear about how prices are being generated then S&R has very little to no relevance to future price movement anymore.  Not even in a self-fulfilling prophesy...  There are patterns other than S&R underlying the movement of prices as James mentioned they need to be found more in the market mechanism and auction style market of FX environment. I also believe that it is psychologically really hard to give away something that seemed working for one profitably and logically for some period of time.  As with all realizations, giving away something in one direction, will make one open for another... ------------------------------ Anush Mohafez Retail FX Cherry Picker Switzerland ------------------------------ [Reply to Group Online]( [View Thread]( [Recommend]( [Forward]( ------------------------------------------- Original Message: Sent: 09-21-2017 06:41 From: Michael King Subject: Predictive or Indicative? Thanks James, for such a prompt and comprehensive reply, I watched the video last night about how Mrs. Edward almost bought a cow through not fully understanding the mechanics of the cattle auction. You certainly cleared up my main point which was simply semantics, there are no magic indicators or patterns, only an edge which as you rightly say is probabilistic. Regarding Support and Resistance,  yes I get they are just representations on a chart My belief so far about S/R and especially Fibonacci, isn't that they are significant in themselves, ( Fib 50 isn't even a Fib number) but that they are viewed as significant which can make them become a self fulfilling prophecy, surely like 'key' Moving Averages, whether the traders understand the underlying mechanics or not. But 80% of trading volume being purely utilitarian does sort of debunk that notion. So plenty of food for thought, particularly with regard to imbalance Thanks again for such a prompt reply ------------------------------ Michael King ------------------------------ Original Message: Sent: 09-21-2017 05:48 From: James Edward Subject: Predictive or Indicative? Great questions and discussion Michael. I think there can be confusion about semantics. Are certain conditions/patterns predictive or indicative? For me personally, I try to avoid talking about prediction because to most amateur traders, prediction often means certainty. They mistake the idea of being able to predict something with 60% probability as meaning it is certain to happen. Look at the Trump election... Experts were suggesting Trump had only a 30% chance of wining and 70% chance of failing. Most people took that to mean he had no chance of winning and that the experts got it wrong. No they didn't, they got it right. The prediction was probabilistic not certain. So that's why I avoid the term as much as I can. Indicative for me makes much more sense and I think helps more people accept what is really happening. Now are some indicators predictive/indicative in a probabilistic way? Yes. However, most people are not using indicators of any value, and those who are achieving success with an indicator, may be (usually are) attributing their success incorrectly to the indicator and ignoring the other factors. I'll use your example of divergence. You said it works 70% of the time and only has a couple of other minor factors involved. But is it actually the combination of all factors that really provide the edge, rather than the divergence itself? My style for example relies on strength v weakness. Is that my edge? No. I also rely on momentum. Is that my edge? No. I also rely on liquidity. Is that my edge? No I also rely on Volume. Is that my edge? No. Strength v weakness is perhaps 90% of where my edge lays and that is my "big" thing, but it is only when ALL the factors come together and are aligned, that I have a reliable edge. And actually, as I will post further down this, the real edge behind all of it, actually comes down to liquidity imbalance. Strength and weakness is the best indicator or where the liquidity imbalance is, and so I rely on strength and weakness more than anything else as my primary indicator, but the true edge that triggers everything is liquidity imbalance at the depth of market. Now to support and resistance. In forex, it is a myth. Completely and utterly in all forms. This, and everything else has to come down to what is actually going on in the market at a mechanical level. Forget charts. Charts display price changes. They say nothing about how the market works, or why a price changed, how, who changed it, or why. If anything is predictive or indicative, or has any meaning, it has to be relevant to the market mechanics. So what is support or resistance? I mean what is happening in the market...not what does it look like on a chart. What orders have to exist for support or resistance to exist and who has placed those orders and why? You should ask the same question for everything you see in the market. I'm going to copy some text taken from a video I put out this week as part of the cybernetics course. Hopefully this will put some of this in to perspective: Fundamentally, all markets are the same. There's a product, and there are people buying and selling that product. However, despite that fundamental sameness, every market is different. They each have their own rules, characteristics, etiquette's, and structures. Different people participate in each market, and people have very different reasons for participating in each market. A farmer's livestock market and Southeby's are both auction market places, but they are very different in the way they operate and why they exist. In trading, most people confuse markets with charts. But a chart just shows you changes to the price of the underlying product. That's all. It tells you absolutely nothing about why the price changed, or who caused it to change, or whether it is likely to change again in the future. My wife went to a livestock market last year with a farmer neighbour of ours, and she nearly bought a cow by mistake. She rubbed her nose without realising at that market, that was a gesture to signal a bid. When the auctioneer pointed to her to confirm her bid, she panicked and raised her hand to say that she wasn't participating, and that was considered a gesture to increase the bid increment by a factor of 5. Her friend had to quickly tell her to stand perfectly still and not do another thing. The friend on the other hand, was an expert. They bid on certain cattle and not others tactically depending on who else was trying to buy, how many people were competing, what time of day it was and how many cattle were left, who was selling and how much had already been sold, and so on. Our friend understood the market dynamics and operated like a pro. The same thing happens in financial markets, and most traders are totally clueless. They don't even realise what mistakes they're making, because they have no idea about the unique and intricate mechanics of the particular market they're involved in. A system is basically a framework that gives you a methodical strategy for tactically participating in the market. Let's just call it a set of rules or instructions for how to behave. For a system to be of any use, it has to be relevant to the market. If my wife's friend wrote down a set of instructions on how to buy a cow at the local cattle market, and I tried to use that to buy a Ming vase at Sotheby's auction house in Manhattan, it's not going to work. If a highly successful and famous trader has developed a system (a set of rules or instructions) to help him tactically participate in the pork bellies futures market, that has got absolutely no relevance to the spot forex market. None at all. The same as a system designed for use in the Dow Jones has no relevance to the copper market. The charts from all those markets will look the same because all charts display price changes; but why the price changed and how, will be different from one market to the next depending on why that market exists and who's participating in it and what their objectives are. And don't forget Apophenia and memory recall. We see patterns where none exist and give meaning to meaningless data. All humans do this. And then to reinforce how things "appear" we remember all the times it worked as we expect and forget all the times it didn't. If anything is predictive/indicative, it has to be relevant to the market mechanics and be nothing to do with a chart. What orders are in the market and why or how can those orders influence the future? In an auction market like forex, liquidity imbalances can predict the future price movement with up to 80% accuracy over a distance of 10 pips or so, or a time frame 7 to 10 seconds. Stanford university proved this. That's all down to market mechanics. No one has ever proved anything like that with patterns on a chart....because charts are not markets. I'm in danger of sounding confrontational.... I'm just rushing to get you a reply and add to the discussion before I head out in the next 10 minutes. Please come back to me with more questions, or challenge me on anything you disagree with or don't understand my point on. You've brought up a really valuable topic here. ------------------------------ James Edward London Original Message: Sent: 09-21-2017 05:00 From: Michael King Subject: Predictive or Indicative? I have been a little bemused by some of James' recent clarifications: Studies have shown that popular tools are not predictive. They may have value but they are not predictive. Would it be true to say that such tools and indicators may 'indicate'  where price is more likely to go but technically they are not predictive by definition? Perhaps I can give an example - Although I don't believe Divergence was alluded to, I will hazard a guess and assume 'studies' have proven that Divergence is not predictive. I trade a strategy however, that relies heavily on Divergence and is 70% successful, and in the 30% of cases where price completely ignores the Divergence, the next instance of Divergence is invariably successful. There are one or two other factors involved in the strategy but Divergence is the main factor. Many traders have been trading this system with very similar results over many years. I don't know if any studies have been conducted on Divergence or what the criteria of the analysis would be. But if you back tested  every instance of Divergence it is very likely that the results would indicate that Divergence alone is of no practical use at all in predicting direction. Would the Study however, take into account that you need to wait for a break of trendline after Divergence, in which case  there is a very high probability that price will move in the direction of  that break. I would consider that to be predictive but perhaps I should use the word 'indicative'? James did definitely refer to Support and Resistance as being non predictive and that really caught my attention. But he didn't say they were insignificant The usual belief which may be considered a 'myth' is that 'Support becomes Resistance' and vice versa. I have found this to be true more often than not and  whenever I have traded into nearby major support or resistance it has not usually worked out well. So would I be right in thinking that even if not predictive, major levels of support and resistance are highly significant and are best not ignored? or do studies show that they can be ignored with impunity? Sorry if I appear somewhat obtuse on this.  I would just appreciate a little clarification and am certainly not courting controversy. ------------------------------ Michael King ------------------------------ [] [top](#toca) [previous](#m3) [next](#m5) 5. [Re: Predictive or Indicative?]( [Reply to Group](mailto:COMPLETECURRENCYTRADER_generaltradingdiscussion_d3725bce-91fb-480b-ae41-fb8724c3c5a6@ConnectedCommunity.org?subject=Re: Predictive or Indicative) [Reply to Sender]( [James Edward]( Sep 21, 2017 8:26 AM [James Edward]( Yes, the self fulfilling prophecy argument sounds the most convincing I've heard for why many indicators and patterns may be of use - at least it makes some sense. But again, it has to be put in market context. Who are the people looking at these things, and are there enough of them to make a difference? In some markets it may be the case. If we assume a market is 99% speculative, with relatively few truly big players (capable of moving the market) and it is widely accepted that certain key figures are important AND observable by the majority (like a round number), then it could have a self-fulfilling element and be significant. To my knowledge, such a situation has never been proven to exist but it does at least make some sense and is 'possible'. But do those conditions exist in all markets? No. Especially not forex. Most forex price changes are done without any buying and selling at all. The buying and selling that does happen is mostly utilitarian without anyone looking at charts. There are also far too many participants for anyone to be able to control the market for long. So there are too few people even looking at charts, never mind the same charts or the same things or having the same objectives (not everyone is speculating) for there to be any hope of a self fulfilling aspect. ------------------------------ James Edward London ------------------------------ [Reply to Group Online]( [View Thread]( [Recommend]( [Forward]( ------------------------------------------- Original Message: Sent: 09-21-2017 06:41 From: Michael King Subject: Predictive or Indicative? Thanks James, for such a prompt and comprehensive reply, I watched the video last night about how Mrs. Edward almost bought a cow through not fully understanding the mechanics of the cattle auction. You certainly cleared up my main point which was simply semantics, there are no magic indicators or patterns, only an edge which as you rightly say is probabilistic. Regarding Support and Resistance,  yes I get they are just representations on a chart My belief so far about S/R and especially Fibonacci, isn't that they are significant in themselves, ( Fib 50 isn't even a Fib number) but that they are viewed as significant which can make them become a self fulfilling prophecy, surely like 'key' Moving Averages, whether the traders understand the underlying mechanics or not. But 80% of trading volume being purely utilitarian does sort of debunk that notion. So plenty of food for thought, particularly with regard to imbalance Thanks again for such a prompt reply ------------------------------ Michael King ------------------------------ Original Message: Sent: 09-21-2017 05:48 From: James Edward Subject: Predictive or Indicative? Great questions and discussion Michael. I think there can be confusion about semantics. Are certain conditions/patterns predictive or indicative? For me personally, I try to avoid talking about prediction because to most amateur traders, prediction often means certainty. They mistake the idea of being able to predict something with 60% probability as meaning it is certain to happen. Look at the Trump election... Experts were suggesting Trump had only a 30% chance of wining and 70% chance of failing. Most people took that to mean he had no chance of winning and that the experts got it wrong. No they didn't, they got it right. The prediction was probabilistic not certain. So that's why I avoid the term as much as I can. Indicative for me makes much more sense and I think helps more people accept what is really happening. Now are some indicators predictive/indicative in a probabilistic way? Yes. However, most people are not using indicators of any value, and those who are achieving success with an indicator, may be (usually are) attributing their success incorrectly to the indicator and ignoring the other factors. I'll use your example of divergence. You said it works 70% of the time and only has a couple of other minor factors involved. But is it actually the combination of all factors that really provide the edge, rather than the divergence itself? My style for example relies on strength v weakness. Is that my edge? No. I also rely on momentum. Is that my edge? No. I also rely on liquidity. Is that my edge? No I also rely on Volume. Is that my edge? No. Strength v weakness is perhaps 90% of where my edge lays and that is my "big" thing, but it is only when ALL the factors come together and are aligned, that I have a reliable edge. And actually, as I will post further down this, the real edge behind all of it, actually comes down to liquidity imbalance. Strength and weakness is the best indicator or where the liquidity imbalance is, and so I rely on strength and weakness more than anything else as my primary indicator, but the true edge that triggers everything is liquidity imbalance at the depth of market. Now to support and resistance. In forex, it is a myth. Completely and utterly in all forms. This, and everything else has to come down to what is actually going on in the market at a mechanical level. Forget charts. Charts display price changes. They say nothing about how the market works, or why a price changed, how, who changed it, or why. If anything is predictive or indicative, or has any meaning, it has to be relevant to the market mechanics. So what is support or resistance? I mean what is happening in the market...not what does it look like on a chart. What orders have to exist for support or resistance to exist and who has placed those orders and why? You should ask the same question for everything you see in the market. I'm going to copy some text taken from a video I put out this week as part of the cybernetics course. Hopefully this will put some of this in to perspective: Fundamentally, all markets are the same. There's a product, and there are people buying and selling that product. However, despite that fundamental sameness, every market is different. They each have their own rules, characteristics, etiquette's, and structures. Different people participate in each market, and people have very different reasons for participating in each market. A farmer's livestock market and Southeby's are both auction market places, but they are very different in the way they operate and why they exist. In trading, most people confuse markets with charts. But a chart just shows you changes to the price of the underlying product. That's all. It tells you absolutely nothing about why the price changed, or who caused it to change, or whether it is likely to change again in the future. My wife went to a livestock market last year with a farmer neighbour of ours, and she nearly bought a cow by mistake. She rubbed her nose without realising at that market, that was a gesture to signal a bid. When the auctioneer pointed to her to confirm her bid, she panicked and raised her hand to say that she wasn't participating, and that was considered a gesture to increase the bid increment by a factor of 5. Her friend had to quickly tell her to stand perfectly still and not do another thing. The friend on the other hand, was an expert. They bid on certain cattle and not others tactically depending on who else was trying to buy, how many people were competing, what time of day it was and how many cattle were left, who was selling and how much had already been sold, and so on. Our friend understood the market dynamics and operated like a pro. The same thing happens in financial markets, and most traders are totally clueless. They don't even realise what mistakes they're making, because they have no idea about the unique and intricate mechanics of the particular market they're involved in. A system is basically a framework that gives you a methodical strategy for tactically participating in the market. Let's just call it a set of rules or instructions for how to behave. For a system to be of any use, it has to be relevant to the market. If my wife's friend wrote down a set of instructions on how to buy a cow at the local cattle market, and I tried to use that to buy a Ming vase at Sotheby's auction house in Manhattan, it's not going to work. If a highly successful and famous trader has developed a system (a set of rules or instructions) to help him tactically participate in the pork bellies futures market, that has got absolutely no relevance to the spot forex market. None at all. The same as a system designed for use in the Dow Jones has no relevance to the copper market. The charts from all those markets will look the same because all charts display price changes; but why the price changed and how, will be different from one market to the next depending on why that market exists and who's participating in it and what their objectives are. And don't forget Apophenia and memory recall. We see patterns where none exist and give meaning to meaningless data. All humans do this. And then to reinforce how things "appear" we remember all the times it worked as we expect and forget all the times it didn't. If anything is predictive/indicative, it has to be relevant to the market mechanics and be nothing to do with a chart. What orders are in the market and why or how can those orders influence the future? In an auction market like forex, liquidity imbalances can predict the future price movement with up to 80% accuracy over a distance of 10 pips or so, or a time frame 7 to 10 seconds. Stanford university proved this. That's all down to market mechanics. No one has ever proved anything like that with patterns on a chart....because charts are not markets. I'm in danger of sounding confrontational.... I'm just rushing to get you a reply and add to the discussion before I head out in the next 10 minutes. Please come back to me with more questions, or challenge me on anything you disagree with or don't understand my point on. You've brought up a really valuable topic here. ------------------------------ James Edward London Original Message: Sent: 09-21-2017 05:00 From: Michael King Subject: Predictive or Indicative? I have been a little bemused by some of James' recent clarifications: Studies have shown that popular tools are not predictive. They may have value but they are not predictive. Would it be true to say that such tools and indicators may 'indicate'  where price is more likely to go but technically they are not predictive by definition? Perhaps I can give an example - Although I don't believe Divergence was alluded to, I will hazard a guess and assume 'studies' have proven that Divergence is not predictive. I trade a strategy however, that relies heavily on Divergence and is 70% successful, and in the 30% of cases where price completely ignores the Divergence, the next instance of Divergence is invariably successful. There are one or two other factors involved in the strategy but Divergence is the main factor. Many traders have been trading this system with very similar results over many years. I don't know if any studies have been conducted on Divergence or what the criteria of the analysis would be. But if you back tested  every instance of Divergence it is very likely that the results would indicate that Divergence alone is of no practical use at all in predicting direction. Would the Study however, take into account that you need to wait for a break of trendline after Divergence, in which case  there is a very high probability that price will move in the direction of  that break. I would consider that to be predictive but perhaps I should use the word 'indicative'? James did definitely refer to Support and Resistance as being non predictive and that really caught my attention. But he didn't say they were insignificant The usual belief which may be considered a 'myth' is that 'Support becomes Resistance' and vice versa. I have found this to be true more often than not and  whenever I have traded into nearby major support or resistance it has not usually worked out well. So would I be right in thinking that even if not predictive, major levels of support and resistance are highly significant and are best not ignored? or do studies show that they can be ignored with impunity? Sorry if I appear somewhat obtuse on this.  I would just appreciate a little clarification and am certainly not courting controversy. ------------------------------ Michael King ------------------------------ [] [top](#toca) [previous](#m4) [next](#m6) 6. [Re: Predictive or Indicative?]( [Reply to Group](mailto:COMPLETECURRENCYTRADER_generaltradingdiscussion_5e07a296-1d20-407f-944e-16f83ca92c65@ConnectedCommunity.org?subject=Re: Predictive or Indicative) [Reply to Sender]( [Anush Mohafez]( Sep 21, 2017 3:07 PM [Anush Mohafez]( Based on the 2013 triennial figures of the BIS (Bank for International Settlement, also called as the central bank of the central banks - 2016 figures seem not majorly different but not yet in depth analyzed) based in Basel Switzerland (btw, this is indirectly were Basel I, II & III come from as the Basel Committee on Banking Supervision (BCBS) resides in the BIS building - a great architecture some say resemble the male gender, you may have a look for yourself), the global FX SPOT market is mainly non-speculative as participants actively trading in it for speculation are some 18% only. All other participants, thus the very great majority of 82% in the FX SPOT market, are of utilitarian nature, which by their nature are generally ''losing'' participants.  For those of you who are interested in researching such facts, please find some background info here of the latest 2016 report here: www.bis.org/publ/rpfx16fx.pdf There is a difference mentioned in this report that the FX SWAP market, not the one we are active in, diverged from FX SPOT for the first time in history, the first one rose, ours fell in market share.  I don't know enough about the currency SWAP and FX SWAP markets but believe to understand that they are trying to offset risk in currency value and possibly its interest for counterpartys, thus again also here more an insurance type of transaction rather than speculation and thus the major money is not speculating against us but try to offset their risk position. I am really interested in some feedback of the community of people involved in such markets and having first hand information.  Also I would be very interested in feedback that proves against above mentioned statements.  To me it is not a question of being right or wrong, I truly want facts that prove either or both direction.  Statements without facts of prove to me are more initiated by one side of the brain rather than by a well balanced judgement of our rationale and emotional brain qualities.  This is exactly where the cybernetics training comes into play... Looking forward to some great responses... ------------------------------ Anush Mohafez Retail FX Cherry Picker Switzerland ------------------------------ [Reply to Group Online]( [View Thread]( [Recommend]( [Forward]( ------------------------------------------- Original Message: Sent: 09-21-2017 08:25 From: James Edward Subject: Predictive or Indicative? Yes, the self fulfilling prophecy argument sounds the most convincing I've heard for why many indicators and patterns may be of use - at least it makes some sense. But again, it has to be put in market context. Who are the people looking at these things, and are there enough of them to make a difference? In some markets it may be the case. If we assume a market is 99% speculative, with relatively few truly big players (capable of moving the market) and it is widely accepted that certain key figures are important AND observable by the majority (like a round number), then it could have a self-fulfilling element and be significant. To my knowledge, such a situation has never been proven to exist but it does at least make some sense and is 'possible'. But do those conditions exist in all markets? No. Especially not forex. Most forex price changes are done without any buying and selling at all. The buying and selling that does happen is mostly utilitarian without anyone looking at charts. There are also far too many participants for anyone to be able to control the market for long. So there are too few people even looking at charts, never mind the same charts or the same things or having the same objectives (not everyone is speculating) for there to be any hope of a self fulfilling aspect. ------------------------------ James Edward London ------------------------------ Original Mes