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Economic Mindmaps?
- Thread starter hcour
- Start date
A good read about the magical land of Economics : Economists discuss relevance of their profession
Its somewhat dated but its a response to the 1996 article in the New Yorker : "The Decline of Economics." I just happen to have a copy of the 1996 article while attending a univsersity who dispersed it among its faculty with a warning from a professor in the margin : "If you are in a real sensitive mood, you might want to read it later. Does this mean anything for our Department?" lol, I didn't think the department had such sensitive people.
Whatever map your looking for, keep in mind that the field is "broken." What is taught or perceived as logical only applies in their universe. One example is the erronious belief that raising the minimum wage leads to higher unemployment as mentioned in the link above.
Or to be fair lets say economics is an ever evolving field trying to catch up with the real world in terms of explaining certian phenemona. The sad part is when the economists have a grasp on it, the world changes.
Its somewhat dated but its a response to the 1996 article in the New Yorker : "The Decline of Economics." I just happen to have a copy of the 1996 article while attending a univsersity who dispersed it among its faculty with a warning from a professor in the margin : "If you are in a real sensitive mood, you might want to read it later. Does this mean anything for our Department?" lol, I didn't think the department had such sensitive people.
Whatever map your looking for, keep in mind that the field is "broken." What is taught or perceived as logical only applies in their universe. One example is the erronious belief that raising the minimum wage leads to higher unemployment as mentioned in the link above.
Or to be fair lets say economics is an ever evolving field trying to catch up with the real world in terms of explaining certian phenemona. The sad part is when the economists have a grasp on it, the world changes.
Hi Harold, well I think that a 'mindmap' could be a potential 'minefield'
however it's an intriguing idea if it could be systemized.
A start (?), following came through:
http://finance.groups.yahoo.com/group/leveragefx/message/465
" Very interesting commentary on the yen crosses,
http://www.dismally.com/2006/12/the_yen_continues_its_losses.html
Also catch the link: schematics of how currencies move.
http://www.dismally.com/2006/12/what_dollar_decline.html "
posted by 'main7695'
Are you thinking of focusing a mindmap on particular currencies ?
How do you think a/the mindmap would increase your trading profitability ?
Would you use the mindmap to trade instruments other than currency ?
however it's an intriguing idea if it could be systemized.
A start (?), following came through:
http://finance.groups.yahoo.com/group/leveragefx/message/465
" Very interesting commentary on the yen crosses,
http://www.dismally.com/2006/12/the_yen_continues_its_losses.html
Also catch the link: schematics of how currencies move.
http://www.dismally.com/2006/12/what_dollar_decline.html "
posted by 'main7695'
Are you thinking of focusing a mindmap on particular currencies ?
How do you think a/the mindmap would increase your trading profitability ?
Would you use the mindmap to trade instruments other than currency ?
Thanks for the responses, but I suppose I should explain a bit about what I'm trying to do. A "mindmap" is just a way of organizing information in a kind of tree structure or hierarchy. Here is a sample from the program I'm using, freeware called "FreeMind". This is how part of their Help documentation is organized into a mindmap sample:
http://i22.photobucket.com/albums/b313/Hcour/MindaMapSample1.gif
I trade now using TA. I'm interested in incorporating a strategy by Joseph Kerr from his book "Method in Dealing in Stocks", first published in 1923. If anyone is really interested in the strategy, I've written about it in the following 2 threads, however it's not necessary to read them in order to understand mindmaps:
http://elitetrader.com/vb/showthread.php?s=&postid=1211069&highlight=kerr#post1211069
http://elitetrader.com/vb/showthread.php?s=&threadid=79308
To summarize Kerr much too briefly: He watches how the mkt reacts to fundamental news (be the news good/bad, significant/insignificant, suprise/expected, discounted, etc) to try to determine mkt direction, incorporating his interpretation of that reaction w/basic TA principles such as Price, Volume, Support/Resistance, Trend/Range. It fits perfectly w/the simple Wyckoff-style TA that I use. His book is about stocks, but the analyses are founded in good ole supply and demand principles, so it can apply to any auction mkt, and as I've been studying FX, it occurs to me that no mkt has more news "events".
I'm not trying to become an economist, or a fundamental trader, or to predict anything based on economics or fundamentals. What I'm doing is using Kerr's analyses of mkt reaction to news, combined w/TA. It's not important for me to become an expert in economics or fundamental analysis to use this strategy.
Having said that, I do need to know what news is more or less important, and when and why. Some news is always significant, some more or less so at certain times and under certain conditions. So I'm just trying to get a grasp on some general economic principles, especially as related to currencies and foreign exchange. And I'm mainly focusing on understanding the economics of 2 specific countries, US and UK, since I'm trading the GBP/USD.
When I was first studying TA much of my intial difficulties were a result of information overload. One of the problems when learning something new is sifting thru all the info to get to what matters most. To get an overall grasp of the subject and then, after you have that "grasp", to work your way down into more detail. Hence the "Economic Mindmap". I don't expect it to be simplistic, perhaps economics is too complex to even attempt it, but I thought I'd ask.
Right now I'm doing some "lite" reading (if that's possible) on general economics (and thanks for that link, Covert, I'll shall get to it soon) and focusing specifically on the UK economy. Since most FX "news" comes from economic reports, I've created a very rudimentary mindmap for the GBP. This is a preliminary map of UK economic indicators, gathered mostly from 3 sites - TradingEducation.com, Daily FX, and the Econ calendar from Forex Factory - in an attempt to see what economic conditions are being monitored. To the far right are the actual econ reports, and to the left (in blue and bold) the particular relevant economic component as I understand it so far.
I can't stress enough that this is a work-in-progress and is very shallow right now, as per my ignorance of the subject. I started off my thread in the FX forum stating that, as I understood it, when it comes to currencies, it was pretty much all about interest rates, therefore it's about the state-of-the-economy, inflation/recession, growing/slowing, (stagnation?). So in a sense, perhaps all economic indicators would be subsets of these aspects and the "economic tree" that I'm trying to build should be re-arranged to reflect that. What I've done here is very simplistic, I just tried to relate the particular indicator to its most obvious economic component as I understand it from reading the commentaries on the various sites.
At the very bottom I've included a category of other mkt components that have cropped up in my studies.
http://i22.photobucket.com/albums/b313/Hcour/GBPMindMap2.gif
Thanks,
Harold
http://i22.photobucket.com/albums/b313/Hcour/MindaMapSample1.gif
I trade now using TA. I'm interested in incorporating a strategy by Joseph Kerr from his book "Method in Dealing in Stocks", first published in 1923. If anyone is really interested in the strategy, I've written about it in the following 2 threads, however it's not necessary to read them in order to understand mindmaps:
http://elitetrader.com/vb/showthread.php?s=&postid=1211069&highlight=kerr#post1211069
http://elitetrader.com/vb/showthread.php?s=&threadid=79308
To summarize Kerr much too briefly: He watches how the mkt reacts to fundamental news (be the news good/bad, significant/insignificant, suprise/expected, discounted, etc) to try to determine mkt direction, incorporating his interpretation of that reaction w/basic TA principles such as Price, Volume, Support/Resistance, Trend/Range. It fits perfectly w/the simple Wyckoff-style TA that I use. His book is about stocks, but the analyses are founded in good ole supply and demand principles, so it can apply to any auction mkt, and as I've been studying FX, it occurs to me that no mkt has more news "events".
I'm not trying to become an economist, or a fundamental trader, or to predict anything based on economics or fundamentals. What I'm doing is using Kerr's analyses of mkt reaction to news, combined w/TA. It's not important for me to become an expert in economics or fundamental analysis to use this strategy.
Having said that, I do need to know what news is more or less important, and when and why. Some news is always significant, some more or less so at certain times and under certain conditions. So I'm just trying to get a grasp on some general economic principles, especially as related to currencies and foreign exchange. And I'm mainly focusing on understanding the economics of 2 specific countries, US and UK, since I'm trading the GBP/USD.
When I was first studying TA much of my intial difficulties were a result of information overload. One of the problems when learning something new is sifting thru all the info to get to what matters most. To get an overall grasp of the subject and then, after you have that "grasp", to work your way down into more detail. Hence the "Economic Mindmap". I don't expect it to be simplistic, perhaps economics is too complex to even attempt it, but I thought I'd ask.
Right now I'm doing some "lite" reading (if that's possible) on general economics (and thanks for that link, Covert, I'll shall get to it soon) and focusing specifically on the UK economy. Since most FX "news" comes from economic reports, I've created a very rudimentary mindmap for the GBP. This is a preliminary map of UK economic indicators, gathered mostly from 3 sites - TradingEducation.com, Daily FX, and the Econ calendar from Forex Factory - in an attempt to see what economic conditions are being monitored. To the far right are the actual econ reports, and to the left (in blue and bold) the particular relevant economic component as I understand it so far.
I can't stress enough that this is a work-in-progress and is very shallow right now, as per my ignorance of the subject. I started off my thread in the FX forum stating that, as I understood it, when it comes to currencies, it was pretty much all about interest rates, therefore it's about the state-of-the-economy, inflation/recession, growing/slowing, (stagnation?). So in a sense, perhaps all economic indicators would be subsets of these aspects and the "economic tree" that I'm trying to build should be re-arranged to reflect that. What I've done here is very simplistic, I just tried to relate the particular indicator to its most obvious economic component as I understand it from reading the commentaries on the various sites.
At the very bottom I've included a category of other mkt components that have cropped up in my studies.
http://i22.photobucket.com/albums/b313/Hcour/GBPMindMap2.gif
Thanks,
Harold
very interesting approach u have harold and the mind mapping software.. i also had tried a mind mapper myself from www.visual-mind.com.. can be really helful at times..
now onto your discussion..
I think it is best for u to focus on the Macro-economic side of things.. this mainly includes interest rates, fiscal policies, trade positions etc..
now identifying them like u have using the mind map is great.. but more importantly is which is most influencial or, or put simply which factors have an influence at all if any!
I give u an example:
rise in interest rate in UK may increase the demand for GBP, but it may also influence the industry exports etc. in other words, u may experience an 'double accounting' error by using too many variables that are highly correlated. also, while some variables are not influencial, they may have a explanatory power which u need to becareful how u include them in your strategy.
the way we do this in econometrics is simply running a regression - remember this tells you which factors are important (i.e. which ones u should cross out) but it don't tell u the DIRECTION of the influence.. for that we have other techniques.
read a basic book on how to run a simple regression and assess which factors are SIGNIFICANT on the variable u are studying.
remember regression analysis can get complex, e.g. forex markets typical have longer memory then stocks, i.e. generaly AR(n) process, in other words, the GBP/USD rate 5 days ago (n=-5) may be more influencial to explaining where it can go tomorrow than the trade deficit of either country.
u may also look into cointegration analysis which i highly recommend for forex markets.
finally u can run granger-causality regression tests to check the direction of the causality. i.e. is the increase in unemployment influencing the GBP/USD or the increase in GBP/USD influencing unemployment?
I know some of this might sound terrible, but can be very easy if u pick up a simple book, and u can do most things using excel.. I highly recommend the following book which u can read in couple of hours (without rocket science maths) that teaches u how to do everything i mentioned: Analysis of Economic Data. this book is a treasure for what you need, trust me!
for ur info, Neil Record started working for bank of england but soon left after he designed a automated forex trading system about 20 years ago - when he was around 25. today he manages over $30bill for his clients. it is clear forex markets can be deterministic.
now onto your discussion..
I think it is best for u to focus on the Macro-economic side of things.. this mainly includes interest rates, fiscal policies, trade positions etc..
now identifying them like u have using the mind map is great.. but more importantly is which is most influencial or, or put simply which factors have an influence at all if any!
I give u an example:
rise in interest rate in UK may increase the demand for GBP, but it may also influence the industry exports etc. in other words, u may experience an 'double accounting' error by using too many variables that are highly correlated. also, while some variables are not influencial, they may have a explanatory power which u need to becareful how u include them in your strategy.
the way we do this in econometrics is simply running a regression - remember this tells you which factors are important (i.e. which ones u should cross out) but it don't tell u the DIRECTION of the influence.. for that we have other techniques.
read a basic book on how to run a simple regression and assess which factors are SIGNIFICANT on the variable u are studying.
remember regression analysis can get complex, e.g. forex markets typical have longer memory then stocks, i.e. generaly AR(n) process, in other words, the GBP/USD rate 5 days ago (n=-5) may be more influencial to explaining where it can go tomorrow than the trade deficit of either country.
u may also look into cointegration analysis which i highly recommend for forex markets.
finally u can run granger-causality regression tests to check the direction of the causality. i.e. is the increase in unemployment influencing the GBP/USD or the increase in GBP/USD influencing unemployment?
I know some of this might sound terrible, but can be very easy if u pick up a simple book, and u can do most things using excel.. I highly recommend the following book which u can read in couple of hours (without rocket science maths) that teaches u how to do everything i mentioned: Analysis of Economic Data. this book is a treasure for what you need, trust me!
for ur info, Neil Record started working for bank of england but soon left after he designed a automated forex trading system about 20 years ago - when he was around 25. today he manages over $30bill for his clients. it is clear forex markets can be deterministic.
I'd start any mindmap with the subject in the middle of the page and ideas radiating around the
center, then format the data such as having a + / - mindmap with + above and - below the center
ie what will rally the gbp, what will cause a gbp decline.
Presumably one could create a 'next-to-be-hit' currency mindmap to help identify a currency or
group of currencies likely to have a major rally/decline; the following article relates one economic
scenario resulting in such currency decline:
http://www.trade2win.com/knowledge/articles/general_articles/canary-correction-one/
http://www.trade2win.com/knowledge/articles/general_articles/canary-correction-two/
For the Pound specifically there may be a referendum on whether or not the UK should adopt the
Euro, and, when will Blair go Brown succeed:
http://news.bbc.co.uk/1/hi/in_depth/uk/2001/uk_and_the_euro/
the ' 5 Tests ':
http://www.hm-treasury.gov.uk/documents/international_issues/the_euro/euro_index_index.cfm
Denmarks referendum circa Sep 2000:
http://www.wsws.org/articles/2000/sep2000/euro-s30.shtml
" Soros is most famous for his single-day gain of US$1 billion on Sept 6, 1992, which he made
by short selling the British pound. At the time England [UK] was part of the European Exchange
Rate Mechanism, a fixed exchange-rate system which included other European countries.
The other countries were pressuring England [UK] to devalue its currency in relation to the other
countries in the system or to leave the system. England [UK] resisted the devaluation but with
continued pressure from the fixed system and speculators in the currency market England [UK]
floated its currency and the value of the pound suffered."
http://www.investopedia.com/terms/g/soros.asp
my point being while (dubious) statistics can be a fairly fixed component of a mindmap, there are
components, events perhaps that have major influences on Price Movement, how are they to be
accounted for in the mindmap/analysis ?
center, then format the data such as having a + / - mindmap with + above and - below the center
ie what will rally the gbp, what will cause a gbp decline.
Presumably one could create a 'next-to-be-hit' currency mindmap to help identify a currency or
group of currencies likely to have a major rally/decline; the following article relates one economic
scenario resulting in such currency decline:
http://www.trade2win.com/knowledge/articles/general_articles/canary-correction-one/
http://www.trade2win.com/knowledge/articles/general_articles/canary-correction-two/
For the Pound specifically there may be a referendum on whether or not the UK should adopt the
Euro, and, when will Blair go Brown succeed:
http://news.bbc.co.uk/1/hi/in_depth/uk/2001/uk_and_the_euro/
the ' 5 Tests ':
http://www.hm-treasury.gov.uk/documents/international_issues/the_euro/euro_index_index.cfm
Denmarks referendum circa Sep 2000:
http://www.wsws.org/articles/2000/sep2000/euro-s30.shtml
" Soros is most famous for his single-day gain of US$1 billion on Sept 6, 1992, which he made
by short selling the British pound. At the time England [UK] was part of the European Exchange
Rate Mechanism, a fixed exchange-rate system which included other European countries.
The other countries were pressuring England [UK] to devalue its currency in relation to the other
countries in the system or to leave the system. England [UK] resisted the devaluation but with
continued pressure from the fixed system and speculators in the currency market England [UK]
floated its currency and the value of the pound suffered."
http://www.investopedia.com/terms/g/soros.asp
my point being while (dubious) statistics can be a fairly fixed component of a mindmap, there are
components, events perhaps that have major influences on Price Movement, how are they to be
accounted for in the mindmap/analysis ?
Batman - Most interesting. As I said, my goal is not to become an expert in the field of Economics, but I checked out the book on Amazon and the reviews give it high praise for keeping it simple for the ignorant neophyte, which I most certainly am. I do feel I need to know what is important and what is not, and the relationships of the various economic indicators to each other and the economy, and if I understand you correctly "Econometrics" can help to do that. (Though any kind of "linear regression" or "time-series analysis", etc, is utterly foreign ground for moi. Math, whew! I wish I was smart.) I'll probably order the book and see if it's useful in this aspect of the Kerr strategy. Thanks much for your thoughts and the reference.
Wallace - Thanks for your suggestions and questions on the mindmap. Kathy Lien, in her book on Forex, in the GBP section, talks about several of the things you mention, including Soros, the 5 Euro tests, and the importance to the GBP of adopting (or not) the EURO. She talks about how comments regarding adoption of the EURO by a politician or someone of import may have resultant repercussions in the currency. As of now, I have accounted for this, in the most general sense, in the "Politics" node of the mindmap, at the bottom. Perhaps this could be expanded to have its own nodes? This would include aforementioned comments, as well as other political influences, such as scandals and elections. Reading the DailyFX analysis for the GBP for 2007, they talk about how this may be Blair's last yr. Naturally a change of leadership would be most significant, and one of the most important things would be the new PM's philosophy on adoption of the EURO.
Kerr, for his part, divides News into 2 parts: Discountable and Undiscountable. The former can be known by the Insiders but is usually not known or understood by the Public, the latter cannot be known by any. An election might be discountable by everyone, if, say, the polls prior to the election showed a landslide one way or the other. Or it might be discountable only by the insiders in a closer election. Or maybe prior to the election it's so close and volatile than even the "smart money" can't figure it out, or maybe Tony Blair gets hit by a double-decker bus tomorrow on the way to afternoon tea, these situations would be undiscountable by everyone. So I think I'm answering your question, in that "shocks to the system" are accounted for in the strategy.
Illiquid - Swing-trade, hours to several days, using primarily daily and hourly charts. Kerr analyzes 2 market conditions: The Internal, which is the longer-term trend, involving the insiders and sometimes the public to a degree; and the Technical, the shorter swings, involving the public (the weak holders), the shorts, and the short-term traders. This is consistent w/traditional TA - ride the trend and buy reactions, or in a range sell resistance and buy support. Again, I can't possibly summarize Kerr's whole strategy, but by adding the element of the mkt's reaction to news, he is trying to determine who is doing the buying/selling w/in those four classes of mkt participants and the effect it will have upon both the longer trend and the shorter swings.
Thanks again for the great input, guys.
Harold
Wallace - Thanks for your suggestions and questions on the mindmap. Kathy Lien, in her book on Forex, in the GBP section, talks about several of the things you mention, including Soros, the 5 Euro tests, and the importance to the GBP of adopting (or not) the EURO. She talks about how comments regarding adoption of the EURO by a politician or someone of import may have resultant repercussions in the currency. As of now, I have accounted for this, in the most general sense, in the "Politics" node of the mindmap, at the bottom. Perhaps this could be expanded to have its own nodes? This would include aforementioned comments, as well as other political influences, such as scandals and elections. Reading the DailyFX analysis for the GBP for 2007, they talk about how this may be Blair's last yr. Naturally a change of leadership would be most significant, and one of the most important things would be the new PM's philosophy on adoption of the EURO.
Kerr, for his part, divides News into 2 parts: Discountable and Undiscountable. The former can be known by the Insiders but is usually not known or understood by the Public, the latter cannot be known by any. An election might be discountable by everyone, if, say, the polls prior to the election showed a landslide one way or the other. Or it might be discountable only by the insiders in a closer election. Or maybe prior to the election it's so close and volatile than even the "smart money" can't figure it out, or maybe Tony Blair gets hit by a double-decker bus tomorrow on the way to afternoon tea, these situations would be undiscountable by everyone. So I think I'm answering your question, in that "shocks to the system" are accounted for in the strategy.
Illiquid - Swing-trade, hours to several days, using primarily daily and hourly charts. Kerr analyzes 2 market conditions: The Internal, which is the longer-term trend, involving the insiders and sometimes the public to a degree; and the Technical, the shorter swings, involving the public (the weak holders), the shorts, and the short-term traders. This is consistent w/traditional TA - ride the trend and buy reactions, or in a range sell resistance and buy support. Again, I can't possibly summarize Kerr's whole strategy, but by adding the element of the mkt's reaction to news, he is trying to determine who is doing the buying/selling w/in those four classes of mkt participants and the effect it will have upon both the longer trend and the shorter swings.
Thanks again for the great input, guys.
Harold
Batman,
I appreciate the response and I don't mean to be rude, but I don't feel comfortable revealing any of that, it's too personal to my own trading methodology. I never have and never will go that deep or be that specific about what I'm doing or trying to do. And, again w/utmost respect, I also don't feel it's relevant to this discussion. Finally, as this is a nascent, still-evolving strategy on my part, I simply can't quantify it just so just yet. There's too much to learn first. I've found, when studying something new, that there is a point that comes early on when you have to learn what to learn. That's what this thread is about, that's what the mindmap is trying to accomplish. The specifics that you mention are down the road, and when and if I get to that point w/Kerr, they will still remain private.
Thanks,
H
I appreciate the response and I don't mean to be rude, but I don't feel comfortable revealing any of that, it's too personal to my own trading methodology. I never have and never will go that deep or be that specific about what I'm doing or trying to do. And, again w/utmost respect, I also don't feel it's relevant to this discussion. Finally, as this is a nascent, still-evolving strategy on my part, I simply can't quantify it just so just yet. There's too much to learn first. I've found, when studying something new, that there is a point that comes early on when you have to learn what to learn. That's what this thread is about, that's what the mindmap is trying to accomplish. The specifics that you mention are down the road, and when and if I get to that point w/Kerr, they will still remain private.
Thanks,
H