Sep. 29th, 2008

peterbirks: (Default)
Several people in the past have expressed something akin to amazement when I say that my main instruments when trading currencies are charts. One person likened it to ancient alchemy, lighting candles at a full moon and singing the praises of pagan gods.

And, at times like these, it's true; charts are worse than useless. This is a volatile reactive market driven by news and rumour. The nearest that you could get to an efficient chartist trading technique would be on a minute-by-minute basis.

But, most times are not times like these. Most times, there are a very few people trading for 'ordinary' reasons (i.e., as part of their business process, that business being something where goods and services are bought and sold in two different currencies and a trade in those currencies needs to take place in order to defend against adverse currency movements affecting the 'real profit) and a lot of people just punting like fuckers. 95% of the time, movements in currencies are due to a bunch of gamblers out there taking a view.

Well, that's not too different from poker. All you need to do is make the move that quite a few other people are going to make a few minutes later.

And charts, curiously, are very helpful in telling you when a bunch of people are likely to make a move in a few minutes', a few hours', or even in some cases a few days' time. How you actually do this is no easier to explain than it is to define why you make a particular play at a particular moment in a poker game, a play that you would not normally make. The chart is your basis, but your actual decision is based on far more nebulous stuff.

Anyhoo, at the moment, all that is just so much bollox. Today's rapid fall of sterling against the dollar (and all movements in the past few weeks) had nothing to do with charts and resistance levels and everything to do with reality. You have to know when to throw the carts away, and now is one of those times. Charts function in the absence of any other news. They work because people believe in them (a virtuous circle, if ever there was one). They feed off a kernal of fundamental value and cause movement around that value.

At the moment, news is far from absent, hence the inaccuracy of any chartist analysis.

However, the movements in the past few weeks can (and will) be used in vaarious future stats to show that all chartist analysis is bollocks. That, too, is a flawed analysis.


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Update: 6.50-pm. Bail-out Bill defeated in house. Uh-oh....

PJ

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