I’ve been poking around in forex charts for a few months now and it seems difficult to understand how to predict where price is going, just by looking at old price. I know there are some traders, I’ve read a book from someone named Gann, who uses moon cycles to project patterns into the future. Anyone else use something like this? An idea also occurred that maybe we could use Google Trends (google it if you don’t know what it is) to come up with some sort of live real time sentiment indicator to judge when the economy is doing good on certain regions and use that for input?
Any ideas guys? What do you use besides old price to help you make better trades?
Moon cycles?! Between us, 6+ billion people share just twelve star signs, I wouldn’t suggest using something as vague as the moon to predict how price might move.
A price chart can look intimidating and alien at first, but that is true of the technical aspects of most professions. You just can’t avoid the tricky bit at the beginning, there’s no shortcut for that.
Personally, I’d advocate putting in some serious time just analysing charts and becoming entirely comfortable with them. If you find that you don’t enjoy that then personally I’d look at doing something else.
if you want to trade better. don’t use google. Im sure if google worked all the big boys would have used it by now. Best thing to do is find a strategy that works exercise good money management and have alot of screen time. you can never predict where the market is going however a good strategy should give you a 60-80% better chance then random guessing (Gambling in other words).
I’m not sure I understand your point about the big boys. If the big boys are using something similar then wouldn’t that means it works and we would want to emulate it?
The moon cycles seems to be a bit of a stretch. That’s why I never finished his book lol! As far as the chart watching, I have spent a good deal of time on mt4 in back test mode, playing old charts back candle by candle, using analysis to try and predict where the next candles will go, then skip a few candles ahead to see if I was correct. Painstaking process and I’ve been as anally detail oriented as possible, but I can not find anything that gives me anything close to a statistically proveable edge. I’m a pretty smart fellow, I am confident that if there was something to see or use as far as charting goes, I would have found it by now. I find something that seems to work for maybe a year or two in back testing (got really excited when I found one that worked for 4 years quite well), but inevitably a period comes along that just wipes the floor with the tech analysis that I was using. If anything, it has been good as it has given me knowledge and confidence that it doesn’t really work (not to the level that I find would be worth investing time into trading) and I can move on to other ways to approach the market.
There has to be something more then just using old price as an input to predict new price. Just trying to think out of the box here.
Here’s a link to something that kind of gets at what I was trying to describe with google trends.
If you go to the google analytics where you can find google trends, just type in “strep throat symptoms”. You can then see the yearly pattern that occurs every single year (few people search for this in summer but many do in the winter) , whereupon you can see when strep throat occurs most often. That’s just an example. And using google trends is just an idea, there has to be more ideas, and better variables to predict price than just old price.
Let me put it in English for you. The big boys are not sitting there using Google to make trading decisions. Have you ever been to a major investment bank or a prop trading firm?
Boys dream of girls; girls dream of boys; new traders dream of reaching success by thinking . . . “there has to be something that will give me a statistical edge and I can find it but I have to think outside the box.”
Poking around charts for a few months, is not enough time to be able to develop a forex strategy, even one by a pretty smart fellow. Every new trader goes through. . ." there just has to be something I can use" and one of my personal favorites " think outside the box. "
After spending time trying to come up with the answer and especially a short cut answer, they either leave the market saying it’s fixed, can’t make money, waste of time, etc, or they do what most successful traders do and that’s spend the time to build a strong foundation of basics, take what they learned to develop a trading plan that they can use to reach their goals long term by using a trading method that long term will put the balance of probabilities on their side, Their trading method will be based on proper money management plan that will grow while protecting their trading capital and through continuous learning and practicing will execute their plan with patience and discipline.
To have a chance at success long term, you have to be willing to learn the basics, and build on what you learn and lastly practice practice and practice. There isn’t any short cuts that anyone if they did find a way they haven’t shared it sofar.
Good Luck
Gp
I quoted the above portion part solely so you remember it down the road, should you pursue trading long enough. Who makes it cross country first, the guy with the super detailed map or the guy with the car?
There are simply SO many ways to look at past price that it’s mind boggling. Don’t study the chart, [I]analyze price[/I]. You’re using your eyes to see something that requires a microscope. If you’re looking for a [I]statistically[/I] proven edge, I doubt you’ll find it by looking at candles and counting red bars and green bars, looking at pinbars “support” and “resistance”, etc. From all your backtesting on the charts, do you know:
What day(s) of the week are most likely the top/bottom extreme? How long does it take? 2 days? 3 days?
What day(s) of the week have the largest range? The smallest?
If Monday prints a green bar, what’s the chance that the week ends green?
If Monday and Tuesday have are both in the same direction, what’s the chance the week will end in that direction?
While there’s a difference between a statistically prove-able edge and a [I]trade-able[/I] edge, there are plenty of statistical imbalances that exist in the market if you look hard enough. Squinting won’t do the trick. You need to employ the right tools to do it as well. You can pull up the chart and hit that f12 key as many times as you want on as many different timeframes as you want to predict price, but don’t be upset that the guy with a hose waters his plants faster than your squirt gun.
On the topic of outside the box, ooeee. You can be SO outside of the box while still being contained within looking at past data. It even has the benefit of making sense!
If your trying to predict where the price is going to go, your gonna have a bad time. Ask yourself about how many people could predict the future and know what’s going to happen.
I’m not sure I’m understanding the connection that you are trying to make between thinking outside of the box and making shortcuts. Because I’m trying to approach the market with a more creative thought process or that I’m questioning a popular premise of retail trading then I’m trying to take short cuts?
The basics are just that, basics. There is nothing about money management that takes more then a few days to understand. You cut you losses short, and let your winners run. Keep you risk per trade at 1% of your account. That’s all there is to that. Now I do agree with you that developing a trading method takes time and practice. I have been doing this and will continue doing this.
However, instead of just going down the path that most seem to go down (using old price as the only input to predicting what price will do next) I want to apply my efforts into areas that have more potential, especially since the success rate for common path seems pretty dismal. Working smart will get you further then working hard. I’d like to think of myself as working hard and smart.
Errrr. I don’t know what the point of opening a trade is if you are not predicting where you think it is going. I do not know another way to take your statement other then you think trading is utterly impossible.
Longing a currency pair is an action you are taking to benefit from your assumption (prediction) that price will go higher.
Shorting a currency pair is a action you are taking to benefit from your assumption (prediction) that price will go down.
If you make no prediction, then why are you even opening a trade?
Maybe I’m missing a profound point to the post that you can clear up.
Finally a post that has some substance! I think what you are describing is what I would say is “market characteristics”. Volatility and average range on specific days seem like important tendencies that could provide an edge. One of the days of the week HAS to have the most occurrence of extremes, it would be impossible for it not to (unless the occurrences were exactly equally distributed over all of the days). I guess the question I have is why these tendencies exist and if they are going to change in the future. Volatility and average true range is a dynamic tendency, looking at the charts it is obvious that this fluctuates greatly from year to year. The day that currently has the most extremes seems like this can also change from year to year. Because the eurusd weekly high for the past year has occurred more frequently on Wednesday then any other day, doesn’t mean that it can’t change to a Tuesday the following year.
I guess I don’t really trust blind statistics based on price given that these statistics still boil down to old price behavior that can’t be guaranteed to continue in the future. I mean, what really makes price behave the way it does to begin with? If we can answer that, then I would be able to know when the price behavior has changed before waiting for the lagging statistical averages to catch up and tell me that they have at which point my account has already suffered a loss.
If there is a statistically significant tendency for a currency to reach its weekly high at a certain day of the week then there has to be an actual real world reason for this behavior (looking beyond the charts). Only knowing this could it seem reasonable to develop a trading strategy around it because you could keep tabs in whether the real world reason for the behavior ever changed, and thus giving you an immediate signal that this tendency will not continue in the future and to stop trying to trade it.
I mean a basic question im trying to even come up with a reasonable explantion to is “why does price even move to begin with”? Yeh I get its based on supply and demand, but there have to be reasons that dictate the demand for a currency besides just the current price level it is sitting at. If there were no other variables besides price, that drive the market, then supply and deman would reach equilibrium and price would become static. There are external pressures that act on supply and demand that price reacts to. It seems like figuring these out would lead to more reliable trades then anything else.
So I guess my real question is what causes changes in supply and demand and how to predict these?
Yeah, it is illogical to predict the future action of A based only on the past action of A. Finding the B’s and C’s that interact and influence A and then use all 3 seems more logical.
Most recent example, the inverse relationship of commodities and USD.
USDX this week saw a huge reversal on Thur and Fri, losses stretching back from April 22nd were regained in those 2 days.
Past price behaviour indicated the possibility of this happening on the Fibre and USDX d1 charts, but that possibility alone is not enough, many traders will look for and indication that the reversal is not only possible but also likely.
Thus an introduction of B.
Back to USDX h1, price had been declining, the decline continuing for the first week of May.
The CRB, on the other hand hit a reversal on April 29, breaking down through a significant Mar high, that reversal down has continued since and seems to be heading for 303.60 - falling commodities and falling USD.
This is just a tiny example of how to look for influencing factors in addition to past price behaviour, here is yet another:
I’m glad you asked that. Now I’m not saying trading is impossible but however predicting the outcome of each trade is, ask yourself about how many people were actually able predict the outcome of each trade in the history of trading.
Now what I’m saying is that if you trade with having the mindset of being able to predict each trade, this will leave you emotionally distressed and discourage you during a drawdown. What trading requires is an edge, if you have a positive edge of 70%, this means that you would win 70% of the trades you place but however you don’t know when you will encounter the other 30% losing trades, this is because of random distribution. For example if you flip a coin 99 times and it landed on heads, how do you know that the next time you flip a coin its going to land on tails, you simply don’t know.
So what i’m trying to say is that if you have a positive edge, you should take each signal your strategy gives, because if you miss even one it could interfere with your edge.
I’m sure you’ve heard of the phrase ‘Cut your losses, and let your winners run’, it is so easy to understand but hard to implement, this is because traders try to implement is by predicting the outcome of each trade, this is wrong. What this statement is trying to say is that during a drawdown reduce position sizes, trade less pairs etc, but once your edge starts to play out; take each signal and try to max out the profit for each trade as your winners would make up for the losers and give you a positive profit return.
Glad I could help, hope you understand that, if not please ask.
That is a real good question. It boils down to the market participants themselves and why they trade. If it helps, identify a group of market participants that you want to exploit. Discover their motivation in entering the market and see if you can extract profit from them.
For example, you might note that Wednesdays tend to mark the intra-week’s high or low. What group is causing this event? It could be intra-week traders who are starting to close the positions they opened on Monday and Tuesday. Perhaps you can design a system or method that exploits this e.g. open a position on the first breakout on Monday and close mid-Wednesday. Until we see weekends abolished or shifted to other days, this pattern may repeat itself [I]enough[/I] to make a profit.
The great thing about being a retail trader is that we are small enough to exploit niche market inefficiencies that the big money ignore.
To answer some of the things you mentioned to here and in a couple other responses, I’ll give another analogy (oh boy). I see trading a lot like weather forecasting, with weathermen similar to traders.
The market is not “random” in the true sense. There’s no algorithm or person with a ton of money who flips a coin to buy or sell (at least I hope not). Rather, the funds, banks, computers use information available to them to make trade decisions. The net result we see in the market is movement, some correlated(movement in the same direction/trend), some not. The true nature (reason) for the market moving is A LOT of different reasons with different amounts of money behind it. Now take the weather. Is the weather completely random at it’s core? Nope. The weather is created via interactions with all the molecules/particles in the air, combined with physics and whatnot. It’s simply too much to calculate and that’s why even today, with our incredible technology, we still fail at predicting the weather sometimes.
Yet, while we can’t pinpoint the high and low of the temperature outside (much like the H/L on the chart) to perfect accuracy, we CAN be reasonably sure of the [I]range[/I]. More importantly, we do seem to be pretty good at predicting storms, fronts, etc. and when these occur, their severity, length, etc. If you had to make a living based on gambling on the weather, without any aid, you’d probably still do a decent job of it. If temperature has been dropping over the past few days, it’ll probably be on the cool side tomorrow. If there’s a lot of clouds, it might rain. If it rains, it’s probably cloudy. Once it rains, it’ll probably stop at some point. To me, this is why the phrase “finds what works for you” exists. We all have to find our own method to “forecast” the weather. Some may argue theirs is better, more aligned with “true” measures of the weather, but we don’t always need to know every bit of information available to make a good guess. We just need to know enough, with some knowledge of when things are exploitable, as Kevin puts it. Ok done with the weather lol.
Now, to address what you said about blind statistics and the fear of changing in the future-absolutely true. But I don’t think there’s anything wrong with using it as a guide. (For the record, EUR Monday closing up leads to the week closing up about 60% of the time. Yet, this is [I]not[/I] enough to be profitable on, regardless of it’s obvious implications.) To answer your question, I have no idea how to predict what causes changes in supply and demand. But I know that when it’s Wednesday morning and the weekly range is 70, we’ve got a ways to go before it reaches a range acceptable for it’s average (barring holidays)
