Credit: By Jay Meisler
I wrote an article recently on why EURUSD 1.10, one of what I call my magic levels, is so important. In response to the article, one of the highly respected members of the Global-View.com Forex Forum replied with his thoughts. It was not only a good history lesson but one that revealed some of the mysteries of forex aglos and the influence they can have on the market.
We have been writing about a market of limits and how price action more often than not does not go as far as one would expect. This is a keen observation as we do not seem to have the overshoots we had in the past. We have referred to this as an invisible hand and it may in fact be a series of invisible hands that include algos.
Posted in Response to Why EURUSD 1.10 is So Important
From the Global-View Forex Forum
Here's my take on "Magic Levels."
In days past in FX there were no magic levels - there were only targets.
So a 1.1000 approach meant we would see 1.0800 before a bounce back to 1.1200 + that type of move would only take 1-2 hours.
There were no Algos or PC Programs monitoring the markets 24/5 looking for any advantage or correlation to trade ... the best we had were Turtle Traders who wanted to break levels not bid them.
This created a situation where Traders who had been around a while would just trade the overshoots + make really good money.
Now we battle over every level - with Algos taking advantage of many more markets operating at the same time + being able to arb here / correlate there and reduce their risk many times over.... yet still churn out profits on a daily basis.
The only time we see the overshoots any more are Monday Opens when all the other markets are closed ... but what happens when everything comes online again ... we end up with the "Monday Effect" and it is back to normal PC driven trades.
More on the subject
FX is interesting in terms of following the themes/data/correlations but not so much the day to day grind of what its become.
At the end of the day everyone has to adapt or get left behind.
I'm sure you probably even remember between NY Close + Tokyo Open - $Yen used to trade in a 200-400 pt range regularly now of course this never happens.
Algo's aren't patterned for those movements anymore .. they are looking for a more normal 5-20 pts.... because they have nothing else to trade into..... only major breaking news makes a difference to this.
This just scratches the surface of how algos have impacted the forex market. Remember, there is not a one size fits all automated trading strategy. There are strategies for range trading, break out trading, scalping trading, news trading etc. In any case, the market has changed and if you view it as one that has limits on any single day, even as volatility has increased, you can incorporate that into your approach.
Feel free to contact me at jay@tradersadvocate.com to add your thoughts on algo trading.,
Jay Meisler, founder
Global Traders Association
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
