Ask any quant on Wall Street (the super geeky math and physics PhDs who create complex algorithmic trading strategies) why there is no “holy grail” indicator, method, or system to pull profits 100% of the time.
You will probably be given two reasons:
1. You can’t predict the future.
Is there any way to know what a central bank head will say during a speech?
Or maybe what a super famous investor or hedge fund manager says during a random TV interview?
Do you know when the next terrorist attack will hit and cause risk aversion?
How about a natural disaster like an earthquake or tsunami?
The list of unforeseen market moving catalysts is infinite and when they happen, they can rock the markets and your forex trading system.
Understand that this is part of trading and the best you can do is be prepared to limit your losses if they occur.
Be ready to have your world rocked. And we don’t mean that in the way you think it means.
2. Data doesn’t move the market. Humans do.
There will be times when data or market themes do not mesh with price action.
Why is that?
Maybe the outcome was priced in ahead of time? Maybe forex traders weren’t focused on the data that was released?
Maybe there was an institution covering a huge position that was on the wrong side of the market?
Would all players in the market react to an unforeseen catalyst the same way?
Whatever the price behavior may be, the decisions that lead a trader to take action aren’t always logical or congruent to the information out there.
When you multiply this by the millions of players with different goals/strategies and different sized trading accounts, it becomes impossible to tell where the overall market will go every single time.
You can’t quantify or calculate human behavior and unknown future events into an elegant mathematical equation to completely get rid of risk.
There will always be some level of uncertainty and there will be times when you will be on the wrong side of a currency market move.
Actually….there will be MANY times when you will be on the wrong side of a currency market move.
Perfectionists should probably stay away.
For those of you who always feel the need to be correct, we must warn you now…
2. Data doesn’t move the market. Humans do.
There will be times when data or market themes do not mesh with price action.
Why is that?
Maybe the outcome was priced in ahead of time? Maybe forex traders weren’t focused on the data that was released?
Maybe there was an institution covering a huge position that was on the wrong side of the market?
Would all players in the market react to an unforeseen catalyst the same way?
Whatever the price behavior may be, the decisions that lead a trader to take action aren’t always logical or congruent to the information out there.
When you multiply this by the millions of players with different goals/strategies and different sized trading accounts, it becomes impossible to tell where the overall market will go every single time.
You can’t quantify or calculate human behavior and unknown future events into an elegant mathematical equation to completely get rid of risk.
There will always be some level of uncertainty and there will be times when you will be on the wrong side of a currency market move.
Actually….there will be MANY times when you will be on the wrong side of a currency market move.
Perfectionists should probably stay away.
For those of you who always feel the need to be correct, we must warn you now…
Nobody can perfectly predict the market every single time.
Nobody.
All hope is not lost though if you decide to stubbornly not listen and continue your search for the Holy Grail.
Rumor has it that if you can find a pink unicorn standing under a rainbow, you will come across an invisible leprechaun who will give you the Holy Grail. Good luck.
