Advanced FPI Explained

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Relativity
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Advanced FPI Explained

Postby Relativity » Fri Dec 16, 2011 2:11 am

What do you see?

This is just basic math fractions most of us learn during elementary school, so someone has got to see what I see. It tells us a very important truth about the market that most traders today aren't really aware of. Except the seasoned ones, or those who traded FX since the 90s will know what I am doing here.
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Relativity
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Postby Relativity » Sat Dec 24, 2011 2:09 pm

Someone asked me some questions, so I decided to respond. He commented : 'All i see is a neutral ring. The math makes sense, simple stuff'

Yup. The neutral ring is the key.

I am aware that we can eat the pie crumbs. But I also want to know whats going on in the big pie. After all, the crumbs do come from the big pie itself.

FPI is about getting those crumbs.
Advanced FPI (for a lack of a better name) looks at the big pie.

FPI requires good data streams at non-retail level. Unfortunately, not everyone is at that level. I would like to find a better playing field for myself and others, so I came up with this. We poor retail traders can't use it for trading, so why not use it for sentiment reading?

As so, to explain :
As an example. When one trades EURUSD, he isn't trading EURUSD. Say go long. Which actually means he is doing 2 things (not 1) :

1- Buy EUR
2- Sell USD

These 2 actions will affect the entire market in 2 ways :
a- Strengthen EURxxx side
b- Weaken xxxUSD side

Every trader should be aware of this. At least the part 1 & 2.

My Advanced FPI shows the effects of a & b on almost a global scale. At least, among the top 8 currencies in the world.

So, I want to know what the entire forex 'pie' consist of. And how much each currency's value is really worth. Everyone knows EUR/USD is 1 EUR = 1.3 USD. No one seemed to ask and want to know how much the EUR is worth relative to the WORLD, like EUR/WORLD, or at least EUR / USD+CAD+AUD+CHF+NZD+GBP+JPY.

I don't trust EUR index or USD index. What if the constitution of the market changes? Fixed formulas of such indexes can't reflect that fast enough. It has to be modified.

Experienced traders from the 90s or those who are very aware of part 1 & 2 will be aware of this. Back in the 90s, there's nothing called a currency pair. The currencies are bought and sold as itself. Pairs are created not too long ago only to 1-facilitate faster quotes, 2-open the market to general masses.

With this, one can guage world sentiment faster. One can see where the smart and dumb money is going. One can see the true effects of bank interventions. Also, this allows us to see how the market is inherently, short. There is nothing called a bull market.

And for the fun of it, I decided to plot 3 years worth of data into the Advanced FPI. And wow. Lots of opportunities. Especially EURJPY and AUDUSD.

Or knowing that any country should actually prefer their currency to be weaker (believe it or not, thats what bank interventions are for), trading against GBP would be a good idea. But which other side should we chose? Hmmm? GBPNZD? GBPUSD?

Look at what happened at the SNB intervention. Do you see something?

Or, you can try to do some Carry Trades too. EURJPY and AUDJPY come in mind.

For those who want to try it, the settings are :
noOfDays = 900
periodToUse = 1440
The indicator is in the TrendTrader thread.
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jeuro
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Postby jeuro » Fri Jan 18, 2013 1:56 pm

Relativity wrote:
As so, to explain :
As an example. When one trades EURUSD, he isn't trading EURUSD. Say go long. Which actually means he is doing 2 things (not 1) :

1- Buy EUR
2- Sell USD

These 2 actions will affect the entire market in 2 ways :
a- Strengthen EURxxx side
b- Weaken xxxUSD side

Every trader should be aware of this. At least the part 1 & 2.
.


Hi Relativity.
I disagree with your theory.

This is the way it is:
"All" entries are purchases and when you exit, you sell what you Had purchased. We never buy and sell 2 currencies at the same time. (unless the transaction is with paper money such in money exchange places or Banks)

If you enter (first transaction) a "Buy" EUR/USD your are buying Euros and create a demand for euros. The USD is the currency of the "loan" the Broker gave you to buy the Euros. When you exit, you are selling the euros and create a supply for euros So. in this case you are not selling USD and not creating any effect for it.

If you enter "sell" EUR/USD you are buying USD with a loan in Euros and create a demand for USD... and for exit, same principle apply as started above.

So, this apply for all pairs. When your first transaction is a "buy" you buy and hold the first currency of the pair . When your first transaction is a "sell" , you buy and hold the second currency of the pair.

Another point. Under your theory we would not profit/loss ever. Meaning if we buy euros and sold dollars at the same time, we would have an hedged positions as both currency are affected by the exchange rate simultaneously.

We can only profit/loss because what we "hold" and the "loan" do not change. Example.. buy 100 000 euros at 1.3320... That transaction is final and will not change. You now own 100 000 euros and have a debt of 133 200 dollars. From there on, the exchange rate continue to change but you will always own same amount of euros with the same debt. Now, Say you decide to sell when the rate is 1.3360. You will receive 133 600 dollars for your euros, you pay the loan of 133 200 and have 400 remaining that goes as profit in your statement.

I do not understand the FPI concept you are presenting. For me, the "I" of FPI is Inefficiency and means that at certain very shorts periods of time (milliseconds) a inefficiency is present and we can buy "3" currencies with an small advantage on the loans, is such way that if we sell them right away we can pay them and have money over right away. In in reality we can not take advantage of.

J.

xtremeforex
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Postby xtremeforex » Fri Jan 18, 2013 5:02 pm

Don't waste time trying to predict which way the market will move.

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