Forecasting Exchange Rates, As Unpredictable As The Weather!

With something as unpredictable as the Forex market, myths that suggest that it is anything other than a labyrinth with a minotaur around every corner are dangerous. Given the odds, it is almost impossible for a new trader with zero knowledge of the market to get lucky and make their fortune. They are almost certain to crash and burn without expert guidance yet the proliferation of myths regarding foreign exchange rates make it more likely that they will try and beat the market with no knowledge anyway.

 

Actually the above title is extremely misleading. The weather can and usually is predicted with a reasonable degree of accuracy. Foreign currency exchange rates on the other hand are nigh on impossible to figure out. Even the most successful traders will lose quite frequently but the difference between them and losing traders is the fact that top quality traders usually win big when they do win and lose small on the many occasions they get it wrong. Although the fact that 90% or more Forex traders lose is a figure skewed by the amount of new traders who never win, the market is not and never will be predictable enough for anyone to guess correctly even half the time.

 

Even though it is well known that the Forex market is basically a game of chance with unfavorable odds for all but experienced traders, newcomers still insist on spending big and incurring huge losses. The cautionary tales that surround the market get ignored in favor of the belief that today will be the trader’s lucky day. This means that despite all evidence to the contrary, even in light of the fact that the Forex market is impossible to predict, traders still elect to follow myths rather than common sense.

 

One of these myths surrounds the effectiveness of Forex software. Yes, there are indeed some good quality robots available that may make you a small profit in the long run if you’re patient. However, most of these machines are piles of garbage with their reputation based on meaningless back testing. The figures they come up with are completely useless because they are simulations with prior knowledge of the closing price. Then you have people who think that complicated systems trump all else. Again, while it is true that a well-thought out complex system can indeed be relatively successful, the mere fact that they have more elements to break than moderate level systems is usually their downfall.

 

According to Yee Kok Siong, possibly the strangest myth is the one that suggests that the best way to win is to trade often. This has no bearing on whether you will win or not. All that will happen here is that you’ll lose even more money if you choose incorrectly. The most lucrative trades come around rarely and these are the key to Forex success. While you must listen carefully to all news concerning the various factors that influence the Forex market, you need to remember that the market reacts to trader’s reactions not necessarily the news. Excited or panicky reactions are what affect the market, not the news that has been broadcast, as bizarre as that sounds.

 

With such a volatile market, following your instincts is not recommended. As difficult as it is to stay calm while chaos rages around you, the cool and collected trader will always have a chance of emerging victorious from the unpredictable Forex market.



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