Take for example the sequence of numbers such as: 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. Even though the answer was obvious in the above case, it showcases an important feature of how predictions in forex trading work. If you have to come up with the right solution, then you must have a tendency to store numbers and remember them accurately.
Here’s one more case study for you: 1, 2, 3, 5, 8, 13, 21. You will probably appreciate that this time it is 34. You have to recognize that each number is given by the sum of the two numbers coming before it. This series of numbers is known as the Fibonacci series that is used in identifying many patterns in science, and the forex market and its prices are no exception.
This is the best way to give you an idea that the prediction of the market is one of the most difficult jobs that a forex trader has to face. The value of the Forex Trading Intelligence Quotient, or your FX I.Q. is decided by your abilities in this field. If you wish to gauge your level of FX I.Q., a good source might be to consider a chain of unpredictable happenings, take for instance the unique series of hurricanes that destroy Florida only sometime back.
First and foremost, it is not possible that a hurricane be predicted beforehand. Scientists can spot the hurricane but cannot say that next Friday at 1:30 p.m., for example, one will start. This is because of something known as the Lorenz Butterfly Effect, so named after an M.I.T. professor who put it forth and founded the field now known as Chaos Theory. He had been working with weather predictions, and it was then that he had come up with 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. Lorenz essentially proved that hurricanes initial conditions were swayed by many variables and were highly sensitive to changes in these variables, so even a butterfly beating its wings near the hurricane can potentially change its trajectory greatly. So, only when you put together the exact, precise values that represent each variable of the hurricane’s system will you be able to say exactly when and where it will hit. Even a tiny omission can mean that the predictions will be supremely off the mark.
You will see that hurricanes and forex prices are quite similar for predictions. It is tough to come up with the next price figure for a currency pair, for instance, as we only have part ideas of all the factors that affect it. 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. The projections that are made like this, with computer-based processes, are significantly defective as they cannot take into account all the factors of the market.
It is the butterfly effect that influence their results. One oversight on your part may affect the net outcome. However, if you happen to spot a pattern in the data, this will help you to come out with more accurate predictions regarding the behavior of the currency pair and its path. Hence, only a few systems can continuously give out the right results as the field of forex price prediction requires a sharp intellect for pattern recognition.
The recipe for raising your FX I.Q. is to add to your memory patterns that correlate with previous successful trades. Since we rarely have a complete grip of the whole system of equations behind the forex market, the prices seem to move around chaotically mostly or even randomly. Forex prices echo the reactionary feelings of more than $2 trillion daily, which means that the prices will diffuse around, although there will be some patterns that recur.
Once you grasp the idea behind intelligence on the forex markets, you are ready to come up with a roadmap to becoming smart in the forex sense. If you want to boost your FX I.Q., take note of how your trades have patterns. The next ideal step would be to take a challenge to get a chain of winning trades. To make it a learning experience, look at the patterns of your trading instead of focusing on the trades.
The capacity to continue winning seven or ten trades at a stretch 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 winnings stop being a theoretical goal after you start indulging in the actual practice of these philosophies. It is there if you want to take it,just reach out. All it requires is having or building your FX I.Q.