Winning On The Forex Market

Let's take a moment to go through the series: 1, 2, 3, 4, 5, 6. What do you think is the next number? Surprise! Surprise! It is 7. Well, not much of a surprise there. You just need basic mathematical skills. Although the solution made its apparent so easily in the above, the true fact is that predicting numbers in the forex market are not so different. Your brain has to be comfortable in recalling numbers and retaining them as and when required so that you could solve the puzzle correctly.

Let's look at another example: 1, 2, 3, 5, 8, 13, 21. By now, it will be clear to many people that the correct answer is 34. The sum of the preceeding two numbers gies the next number in the series. Being a trader, it is imperative that you recognize the above pattern as the Fibonacci sequence that has many applications in science and nature, including forex prices.

These examples shed some light on the sole challenge that a forex trader can face, to predict the numbers in the forex market. The exact nature of the Forex Trading Intelligence Quotient, or what is called your FX I.Q., is resolved by your level of merit in this regards. A good starting point to evaluate your FX I.Q. score is to try and analyze a seemingly unrelated series of events, such as the four hurricanes that ravaged the coast of Florida within a very short time.

Firstly, it turns out that hurricanes are impossible to foresee. Although science can say whether a hurricane is on its way or not, it has no way of predicting if one will happen a month from now. This is because Prof. E. Lorenz from M.I.T. gave the Lorenz Butterfly Effect, and Chaos Theory to boot, that precludes any kind of predictions. His research on meteorology had resulted in the famous phenomenon known as the Butterfly Effect.

Starting with systems that are particularly complex, you find that the butterfly effect will simply preclude any possibility of making any predictions. He illustrated that something as tiny as a butterfly had the power to change the appearance and path of a hurricane because the initial conditions of the hurricane were influenced by many factors and were highly sensitive. Hence, for predicting a hurricane exactly, you will have to have the exact data in terms of every variable that is there in the system and the conditions in which it formed. The tiniest oversight can make your predictions so wrong that it has no use.

Forecasting the price movements in forex is the same as hurricane predictions. It is difficult to foretell the next value in a currency pair because we know only a fraction of all the variables that have an impact on its output. That is why there are inherent bounds on the correctness of the computer programs and neural nets and other such systems that predict these numbers. Not even one of the computer-based approaches is reliable because they invariably miss out on some factors that will impact the price movements of the forex.

They are prone to the sensitivity of the butterfly effect. One oversight on your part may affect the net outcome. Yet, patterns and structures that sometimes crop up in the prices can be utilized to make safer forecasts about the currency pair and their general movements. Pattern recognition plays an important role here, and so just a few systems manage to come out with the right outputs all the time.

The recipe for raising your FX I.Q. is to add to your memory patterns that correlate with previous successful trades. Although it may seem at first glance that the forex prices are completely random and chaotic, it is only due to our lack of complete knowledge of the underlying system. The prices in forex markets are the outcome of more than $2 trillion worth of emotions, resulting a diffusive canvas of repetitive patterns.

On comprehending the notion of intelligence in forex, one can devise a recipe to increase the smartness in the field. Evaluating how you trade is the first step in this regard to improve your FX I.Q. Now, try to achieve a succession of trades that win. The important thing that you should not miss out on is the trading patterns, do not be worked up with the trades themselves.

The skill of keeping up a winning sequence of trades, say five or seven trades, is not attributed to luck. The trader becomes expert in assessing the patterns in the past of the price movements and then uses his memory to tell where it is now going to go. The winning stretches cease being a theory target after you gain experience and enough practice and training. Anyone and everyone can reach it. All it requires is having or building your FX I.Q.

By: Frank Harriison

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