Where Will You Start To Build Your Forex Trading System
If 90% plus of Forex traders fail, why do it? Can you possibly think that you will be any different
?
Most traders who trade Forex are ignorant of probability theory. Probability theory in Forex is the study of which way prices will go, up or down. That doesn't sound too complicated does it? It might be more complicated than you think however and it might have more to do with losing money in than you think.
Consider that way back in the year 1900 a man name Louis Bachelier began to study French government bonds. Probability theory had been around for 350 years going back to two fellows named Pascal and Fermat. Bachlier didn't believe in fundamental analysis or technical analysis, and decided that prices go up or down with equal probability, like tossing a coin. His work was pretty much ignored until 60 years later when Eugene Fama developed it into what is known today as the Efficient Market Hypothesis.
This is the idea you hear express often. It goes something like this, "all the important or relevant information is already priced into a stock or currency pair and all price changes are independent from one another." In the 1980s Bernard Mandelbrot showed that price changes are interconnected and they have a memory. In his words, "Today does, in fact, influence tomorrow."
There is a good chance that if price moves in one extreme today it will move in the extreme again tomorrow. The markets are also not well-behaved and it is not predictable with any degree of certainty. Not the kind that economists would like to see or for that matter The Fed. Forex is one of the most volatile of markets. The way prices are absorbed in the future are not consistent, some have long memories, some short. This contradicts the random-walk theory.
So, with all of this information how do you the Forex trader make money?
1. You can't make money with robots or automated systems on a consistent long term basis. The noise in the market created by spot traders and other robots will burn up your account.
2. Fundamental analysis has some relevance in that your knowledge of market conditions and what I call the Tipping Point after Malcom Gladwell's book will give you an edge. More than if you were completely unaware of the imbalances between say the Euro and the Dollar.
3. Technical analysis which is subjective is not helpful. It is financial astrology. Trend lines, Fibonacci, Gann, Elliott Wave, moving averages, price action, etc, for the most part are not able to provide objective trading methods. At best they are storytelling that can be second guessed and interpreted differently by any number of traders.
What does work?
The best trading systems are systems that find when the market is out of balance. Typically this happens when large banks, speculators, and hedge funds move from one position to the other. The best Forex traders are the ones that anticipate these moves. The Forex trading system you use should be developed around this type of thinking.
1. Look for a system that recognizes momentum changes in the market. Momentum is best determined using indicators like RSI which has 4 signals that give the trader valuable information about what is going on in the market.
2. Use a system that creates a signal by way of an algorithm. In other words the computer tells you when the situation exists but then you use your own mind to decide if factors are right to trade.
3. Those factors might include the time of day or the type of signal or the conditions for moment.
It would be nice to buy a system that you can put on autopilot and make thousands if not millions of dollars trading Forex but this is not happening. Learn to trade Forex using a solid trading system and sound thinking. In the end you be ahead of the game.
by: Paul Dean
Price Action Or Trading Forex With Indicators Easy Steps To Flourishing Forex Trading Without Any Prior Experience Forex Geek - Free MT5 EA The 3 Main Reasons To Use A Currency Trading Strategy Program High street Currency Exchange Nearly 4% More Expensive Then Forex Specialists A Managed Forex Account May Be Right Choice For You Mercado E Inversiones Forex What is scalping in a best forex trading system A Summary Of Forex Signals For Effective Trading How A Forex Trading Program Can Increase Your Success Rate Fap Turbo Forum Forex FXOpen Review - Is FXOpen the Best Forex Broker For Me? ForexBuying and selling Course: A Should for Forex Newbies