Can You Predict the Forex Markets?
In every form of trading, from the stock market to complex forex fields, people are always looking for a way to predict the market's next turns, dips and bubbles. Ever since the massive technology stock bubble of the late 1990s, investors have tried time and time again to predict the rise and fall of major industries and companies, from the seed round of funding right up to the initial failures. The forex world is no stranger to this type of thinking, however it is generally reflected in a slightly different way. From economic recessions to currency crashes, predicting markets is one of the most interesting and puzzling parts of the forex puzzle.
So is it possible? Top traders would like to think it is, but in reality it is very rare to see any one trader that has a constant and consistent record of predicting, and acting to, the major currency markets. With the economic turbulence of the last decade, those who are invested in the markets have had opportunities to demonstrate their knowledge and prediction skills, and very few have been able to on any impressive level. Sure, there have been ups and downs, but very few people have stuck to a clear constant upwards trajectory over a very long-term period.
What does this mean for you as a trader? To start with, it means that predictions are not something that should eat up a great deal of your time. Forex trading forums are ripe with self proclaimed experts and "master" forex traders bursting at the seams to share their next big prediction. There is nothing wrong in spending time on it, but when it becomes your investment information, something is going severely wrong. Allow predictions due time, but never let them shape your long-term investment strategy.
A much more effective strategy is to look at potential predictions and completely short-term, isolated events. Any "miracle prediction" is much more likely to just be a one-off change that is paid off for someone. It is easy to write that markets are going fall, and eventually see them do so, but it is not actually the rise and fall that is important. What is much more important to a forex trader is why the markets change, how they change, and how and when they will recover. This means looking at the small factors that make up the rise or fall, not just the change in isolation.
This means completely discarding the notion that forex markets merely rise and fall arbitrarily. The market loves to speculate, and as the late 2000s have shown, that speculation does not always lead to any concrete results. More often than not, it results in destructive investing and poor decisions. Let events shape your forex decisions, but do not ever let them dominate it. Adapt your forex strategy to take the "why" of these events into account without letting it succumb to false predictions and generalities.
The very best forex traders put their faith in analytical data and metrics, not predictions and hearsay. Let predictions find their way to you, but do not ever let them shape your forex investment strategy.