Ways to Make Money
This is the first post about making money. For some reason I got the idea to investigate how to make money from the world financial or stock markets.
I think what sparked this off was a sudden realization as to how hard it is to make money from the Internet by way of affiliate programs and anything else I am currently doing. Even with normal work it is hard to make significant amounts of money. Wouldn’t you agree?
So what kind of ways are there to make apparently lots of money, easily from home. I am talking millions. The people that make millions with apparent ease are traders in global markets such as Foreign Exchange, futures and options. You would think it would be closed to suckers like us that put our money into low yield savings accounts and pension funds right? But no! You can start with a paltry $250 as a Foreign Exchange Trader and trade $10,000 worth of currency. You can also practice for free. Don’t believe me? Check out this website
Don’t do anything yet though since like me you probably don’t have a clue about which way prices are going (up or down). The free practice account is time limited so don’t waste your free trial either.
So why am I keen on Foreign Exchange (FOREX) rather than Stocks? It’s because I want to be able to predict price movements. Nearly every FOREX trader uses technical analysis to confirm their trading decisions. That means that the collective decision making should in itself be predictable since it is all based on technical analysis. This is not the case with stocks and shares. Also FOREX is continuously traded globally 24 hours, 5 days a week so you don’t get the after hours dealing and insider dealing crap that you get with stocks.
You can do your own digging on the web to confirm this reasoning.
There are all kinds of weird systems that are used to analyze price movements such as candlestick charts and bollinger bands. But I will ignore most of these and simply look for a way to extract repeatable patterns of behavior from historical price data. Maybe I won’t find anything that is repeatable? But I think it’s worth a shot.
Anyway, I spent the whole day working on this. I started with reading up on FOREX at Wikipedia. Then I looked for some historical price data. Next I wrote some simple software to create charts of this data. You could use a spreadsheet but I got hold of 6 years worth of daily prices so it is painful to manipulate 1000’s of rows of data in a spreadsheet.
I started looking at the USD:JPY (US Dollar against the Japanese Yen)
This shows the noon price for trading USD and JPY from January 2000 to yesterday. The black line is the daily price. The red line is a 20-day moving average of the price and the blue line is the standard deviation of the price from the average.
The moving average smooths out the volatility to provide a trend line. This is easily lengthened over more days to give a longer trend.
The standard deviation is fairly useless in this form though. I put it in in an attempt to chart the volatility of the price movements but it is not working in this instance. What I want to do next is flatten out the price movements based on the moving average and then look at the HF (high frequency) oscillations about the average to get a volatility curve that will be more meaningful.
From the moving average you could derive some simple results such as that once an oscillation is broken away from in a smooth line, there is likely to be a continuing trend for a while.
Update:
I removed the Standard Deviation graph and have added a graph (in blue) that shows the divergence from the moving average. I squared the divergence magnitude to emphasize large deviations. Also, the moving average is now over 50 days.
Now this looks more useful than the Standard Deviation I think. So what we have is the raw price data in black, the trend line in red and the divergence from the trend in blue.
The spikes in the blue curve are where the price gathers momentum in one particular direction, then activity peaks and fizzles out again. There are a lot of factors we can consider that may indicate what is likely to happen next. Factors such as the envelope of the spikes, the rate of appearance of spikes, spike magnitude etc. and then compare these factors to the price trend.
Already I am seeing some kind of pattern emerging. Do you notice how the (blue) spikes are of short duration (like a heart beat, they keep coming) but there is a continuous stream of spikes? So if you position yourself between spikes, you just wait! But you need to predict which direction the next spike is going in! But maybe you can bail out of your position early if things are going the wrong way? Or, can you position yourself on the starting incline of the short-term spike curve and take profits just before the peak?
With our various factors, we could try and formulate some rules to suggest what will happen next with the price and buy/sell trigger points. Then we could test this system against the raw price data and calculate the profit/loss over the 6 year period. If one system seemed to work well then we could test it with future price data as the data becomes available. If it carried on working, then bingo!
The next step I am thinking about is to implement a peak tracking curve which may reveal break-out patterns. Also there will be theory exaggeration curves that will either confirm or blast theories out of the water. Always bear in mind though that we are trying to crack the code of the wealthy traders of Wall Street etc. and get a slice of their action.
Please note: While I do this, I am only processing past data in the algorithms so when I come to apply it to future data, I will not have a problem. It is no good looking ahead at data since in the future, the data is not available.
