Not that this could ever happen, but I am interested in understanding what allows for prices to move in a speculative zero-sum environment.
Hypothetical scenario:
Say, every trader was given a crystal ball that allowed him/her to actually know where the price of a given currency was going to go. And in this scenario, we will use the CAD/JPY currency. And we will say that these crystal balls all say the price will go up 100 pips between now and tomorrow.
Now, let us now also assume that every trader also believed in his/her crystal ball and would therefore act on this tip.
Now we have every trader in the world believing that this currency pair will shoot up in a few hours. Some of those traders are already long on this pair. They will hold on to that position presumably. The rest will now go long presumably.
What happens to the price of CAD/JPY?
Does it go up? Since no trader will short CAD/JPY, and every trader wants to buy it, no volume can be transacted. For every unit that is purchased long, a unit must be shorted by someone willing to part with it. However, if all traders believed in the crystal ball, weâd have to assume no one would short CAD/JPY. Thus, no volume would be transacted. If no volume is transacted, what happens to the price?
Now letâs say, this crystal ball not only predicts this currency pair, but all currency pairs. Letâs say every speculative trader believes his/her crystal ball and, consequently, wishes to act in the same direction. Do the markets freeze?
Is it safe to say that the markets can only work as long as there is no demonstrably proven, and therefore universally accepted, way to predict prices?
Pippy, Iâve just read through a load of your questions - you sure youâre not someone highly experienced masquerading as a newbie??!
It depends on the orders used but given the scenario that everyone wants to be long with the expectation of 100 pip move upwards, you can imagine a lot of market orders at the current price. But noone wants to sell until 100 pips above this price. Unfortunately, all those who come in to get long wonât get filled until those already long hit their take profit orders 100 pips up. So they all get slipped 100 pips, but those already long get their 100 pips. Until all those orders are filled, and then price would carry on rising till it finds the next seller.
So even if everyone knows where price is going, the markets just then become a game of who gets in and out first.
no, omniscience would be predicting price movement with 100% accuracy
Doesnât have to be. [I]Omniscience [/I]in any market, would only mean predicting prices [I]profitably[/I]. That means your wins, subtract your losses, over any given time frame, leaves you with a profit at the end. You predicted the market because your aggregate wins exceeded your aggregate loses. If such a thing was possible and you scaled it up by compounding your profits you would, in theory, amass billions simply by repeating the same profitable system. This assumes that the time frame for that system was small enough to repeat it many times. For example, if you had a system where your aggregate wins exceeded your aggregate losses by 30 pips a day, and you compounded your profits, how many weeks would it take to amass a billion dollars? Or ten billion? The crystal ball created a liquidity problem and this scenario should do the same.
Knowing where prices will be in the future is impossible, not because we donât have a crystal ball, but because the FUTURE DOES NOT EXIST except as a mental concept. All that exist is this present moment.
Right now, you may have a thought about tomorrow, but when tomorrow comes, itâs no longer tomorrow, itâs NOW, still.
The logical inconsistency you arrive at in this thought experiment should tell you that your logic is inconsistent. The same can happen in reverse. If you could go back in time and kill your grandfather, you would never have been born and hence never have gone back in time to kill your grandfather.
This is also inconsistent, not because we canât go back in time, but because the past DOES NOT EXIST.
There has been suggested a quantum solution to the grandfather paradox, but I think the laws of thermodynamics would be sufficient to solve it. Either that or the Copenhagen interpretation. Disregarding time dilation which is not true time travel although it resembles it. We can at least say that regarding forex prices we can make an educated estimate of where price is going with a higher probability of being right than wrong and thatâs as close to predicting the future as youâll get. Close enough is good enough.
bye the wayâŚ
quantum mechanics use jumper cables⌠hahaha
geek humor, canât help it !
our jokes arenât like your jokes
Knowing where prices will be in the future is impossible,
While is it impossible to know for a fact, many believe it is possible to predict with a better than 50/50 success rate.
It maintains that through a close analysis of the charts, one can tease out a better than 50/50 chance of predicting which direction prices will go in a relatively short time frame in the future. This is why so many people spend so much time and energy studying it because they believe it is a window, albeit a glazed one, into the future. Basically, it is functioning as a hazy crystal ball for a short time frame.
Unfortunately, as the thought experiment tries to illustrate, if such a hazy crystal ball did exist, and everyone had the same crystal ball, and attributed to it equal credibility, and consequentely acted accordingly in concert within the same time frame, the market would freeze from a lack of liquidity. At that point, yes, the crystal ball has changed the future just as if you went back into time to kill your grandfather. So can a way of predicting the future direction of prices with a success rate better than 50/50, in a short term frame, actually exist in a zero sum game considering that the compounded profits would make everyone a millionaire within months? Who would pay those profits if everyone had access to the same crystal ball? Word spreads fast. Especially on the internet.
in GR of course it isnât just space that curves but time also.
Iâll have to go back and find the quantum view to refresh my memory, itâs something other than just the many worlds concept. But anyway, the thermodynamics was was just an off the cuff thought, I was just thinking that if you go back in time you would be decreasing the total mass & energy of the universe at one point in time and increasing it at some point in the past You canât create or destroy energy, so therefore time travel is not possible. Unless the two balance out and conservation of energy is preserved? Iâm more into cosmology anyway.
Well, gravity⌠itâs not just a good idea⌠itâs the law
The weekend is over⌠thatâs enough physics, back to makin pips.
Thereâs a price/time relationship I gotta go devote some head space too. this could lead to the edge Iâm looking for.
I have to say that I too love this type of âbanterâ but Iâm afraid that, although Iâd like to contribute, the subject matter is W-A-Y above my âstationâ in life. That said: keep it going you lot!!! Itâs interesting (I just have to go and Google all the fancy words being used so that I know what they mean)!!!
So for now (for me): I guess itâs back to âye olde mechanical trading systemsâ!!!
Sounds like the movie Back to the Future. Assuming that you could go back in time, which is another way of seeing the future (from the past), hypothetically that knowledge would change the future, especially if everyone was in on it.
Did they ever come up with an answer as to how many angels can dance on the head of a pin?
