If you want to trade currencies, you need to base your currency trading system on sound logic and here we are going to look at some aspects system methodology and logic of price movement.
Scientific Theories & Prediction
Many forex traders believe that currency prices move to a scientific theory and can be predicted in advance. The most popular methods are based on the works of Elliot and his wave theory, WD Gann and Fibonacci.
Are they scientific? Not at all, let’s define a scientific theory first:
If something moves to a scientific theory, the same equation will work over and over again. In forex terms this means, you would have an objective theory that never got a move wrong – that’s the definition of a scientific theory. Objective rules, same result each and every trade.
Of course, none of the above theories tell you exactly what to do, despite claiming there scientific! It’s a fact Elliot made no real money from trading, Gann did ( but lost it) and Fibonacci’s theory is nothing to do with finance at all ( It was designed to solve a problem of multiplication) in fact, Fibonacci would probably be bemused by the way his theory has been hijacked and applied to something it was never intended for.
Human nature never changes and is constant but humans don’t conform to a scientific theory. While you can’t use a scientific theory, that doesn’t mean you can’t win – you can and to do this, you must see currency trading as an odds game.
Trading the Odds for Bigger Profits
Forex trading has a lot in common in with playing card games such as Poker and Blackjack. It’s a fact that some of the best traders of all time, started out as blackjack or poker players. Why do card players make such great traders? Simple:
They understand to win you have to lose.
A good card player will not play low odds hands at all, fold and take a loss on hands he has entered but knows he cannot win. The successful card player knows he only should bet when the odds are in his favor.
Sounds simple and it is – but most traders don’t trade like this. They want to win all time, hate taking a loss and let their losses run out of control.
To win long term, your system must be on logical and based around trading the odds and you must have the mental discipline to take losses and keep them small.
Unless you learn to lose you will never win. Taking losses hurts our ego’s – but its part of trading. Sure the market will make you and your system look stupid – get used to it, if you don’t you won’t win.
If you are long term trend following or swing trading, you are simply looking to play the odds and if you learn to do it correctly, you will make big long term gains.
There many different methodologies which trade the odds and if you are reading this site you will probably be using forex technical analysis and forex charts to time you’re trading signals. As human nature repeats, this shows up in repetitive chart patterns that can be traded for profit. If you are long term trend following you will see trends that last for weeks, months or years and within these long term trends you will see overbought/oversold scenario’s you can take advantage of to swing trade.