Forex Trading Myths – Why Trying to Predict Prices Is Impossible

One of the largest forex trading myths is that to win you need to predict prices in advance. In fact if you try and do this you are 100% guaranteed to lose and there is a far better way to catch profitable market moves. Let's look at this forex trading mistake in more detail.

The reason predicting forex markets does not work is that if you predict you are simply hiring and guessing and that is not a way to make money in any venture especially forex trading.

Scientific Theories

One of the reasons most traders think predicting is a the way to make money is that they fall for two myths

The first is – human nature is constant and repeats therefore markets must reflect this. Human nature is constant and does repeat itself but humans are emotional and do not conform to a scientific equation.

There are numerous systems sold by the devotees of Gann, Elliot and Fibonacci that tell you that markets do move to scientific theories but if they did we would all know the price in advance and there would be no market.

If a theory is scientific by its very definition it should work all the time – Period.

The second isoted in the logic of "buy low sell high" traders for example, will watch prices dip to support and simply predict the level will hold and buy. They want to buy just above support as that's what they believe is correct.

Well the answer is it's great in theory but never works in practice because you are simply hiring or guessing the levels holds and that means losses.

The correct way to trade is to trade the reality of price change and NOT predict.

For example – if you see prices dip to support do not just jump in WAIT For confirmation that prices have turned away from support and this means using momentum indicators. Sure you miss the turn but as you can not predict that anyway it does not matter.

If you were to get 60 – 70% of the major trends you would still make a lot of money.

So if you dot know about momentum indicators – its time to learn and you should start with these:

Relative Strength Index RSI Average Directional Movement (ADX) and the stochastic – there are others but these are great ones to start with.

In forex trading you are dealing with odds not assurances and therefore prediction is futile and leads to losses. Acting on confirmation means you trade with the odds.

While you can confirm support and resistance with momentum – the best way to catch the big profit trends is to buy breakouts of new highs.
It's a fact that most big moves start from new market highs – Not market lows.

Breakout trading is highly profitable as most traders refuse to buy them and wait for a pullback so they can "buy low" of course, prices do not pullback and the trader misses the move.

By not predicting and trading on the reality of a breakout when it occurs you can catch some of the largest and most profitable moves. "Buy high sell higher" on confirmation is much more profitable than "buy low sell high" on prediction!

So there you have it forget predicting act on confirmation, trade the odds and make Bigger FX profits.

Post Comment