Currency Diagram is a simple but powerful tool for tracking the movement of any investment or portfolio. In the second post, posted two days ago, I described how to create your first Forex Currency Diagram and how to export it to an excel file. In this article we continue that theme by describing what a Currency Diagram actually is, how to make one and then export it into an excel file. In addition, I will explain why I consider this tool important in the context of studying price action patterns in commodities, currencies and securities. This post should help spark your interest in this interesting subject.
A Currency Diagram is a visual depiction of the movement of any investment or portfolio across time. The basic concept behind a Currency Diagram is that it maps the paths of one investment to another. It is based on the theory that there are several types of transactions that can be represented by lines in a chart.
So what does a currency diagram look like? It typically looks something like this:
An excellent metaphor for the conceptualization of a Currency Diagram would be a road at night. If you follow the main street in daylight, you see houses, and in darkness, you would notice lights and street signs. At day time, all of these represent the physical manifestations of people and businesses and their relationships. But if you were to take a trip at night, you would suddenly realize that not everything was good for the world of cryptocurrencies.
For example, let's imagine that the main street is now blocked due to a large truck driving through and completely rips a portion of the road. The entire city is damaged, and some individuals suffer damages as well. At this point in time, several users suggested adding a roadblock just in case. However, what happens if a truck driver gets confused and tries to drive through a different street? The new street becomes a barrier, preventing multiple vehicles from making it to the other side.
This example is just one of several ways how a Currency Diagram helped to identify potential obstacles in the future, especially in the context of Cryptocurrencies. In fact, the very first major currency trading platform to be launched on the Internet was the starting system. The system was designed to help identify chains of currency interest by connecting several users who held accounts with the same bank. In the future, several more innovative systems may emerge that will be able to help define the boundaries of a cryptocurrency's Meta Currency.
In summary, the developers of Cryptocurrency have a constant duty of coming up with solutions that help users identify the most advantageous routes for the future. Without good information, they would be left to hope for a miracle, or spend years developing an algorithm that would sort out the future of Cryptocurrences, rather than allowing the free market to decide the future of something as important as money itself. It is interesting to speculate what would happen if the government allowed the free flow of Information to occur. Would it take the form of self-organized AI software programmers in a singular self-contained environment, or what if we saw a "Darth Vader" style takeover of the government by a group of entrepreneurial computer programmers with an interest in helping the emerging tech culture?
In the final analysis, one of the things that make Cryptocurrences special is the fact that they exist outside of traditional markets. Historically, only things that existed in the physical world were traded in general markets. It was only in the last decade that we saw anything of value to rise to the head of the investor (with the notable exception of oil and gold). Now that investors are beginning to understand the importance of the virtual space, it is likely that the use of Cryptocurrencies will become more prevalent in the future. What does this mean for Gibson Capital and other investors interested in trading commodities?