The aim of most forex traders is to get accurate timing and pinpoint market tops and bottoms and here we will look at the two major ways traders’ use market timing to do this. The concept of predicting market tops and bottoms in advance is based upon these two beliefs.
1. Markets Move To scientific formula
Traders here use methods based around Elliot Wave, W D Gann and Fibonacci to do this. These theories are based upon the concept that as human nature is constant market behaviour repeats itself with scientific accuracy.
Markets however do not move to a scientific theory and its obvious why:
If they did, we would all know the price in advance and there would be no market. A market such as currencies moves on the basis that prices cannot be predicted. Furthermore, if it’s a scientific theory it should be objective and tell you EXACTLY what to do with no subjective judgement – None of the theories above do – so they cannot be termed scientific.
As you can gather they are all subjective and don’t work and are probably about as accurate at predicting market behaviour as your horoscope.
2. Buy Low sell high
Other traders try and predict markets and improve their market timing by buying “low and selling high” but is a misunderstand the concept.
For example, they see prices move to support and buy and this DOES not work.
Because if you do, you are hoping or guessing a level will hold and that’s not a way to make money in any venture and will be disastrous in leveraged forex trading.
The way to do it properly is to get the odds on your side.
The way to do this is to make sure you have evidence that the level has held I.e. prices have reversed and turned back around the other way.
Sure, you miss the bottom but you can’t predict that anyway. By buying at a higher price, you are ensuring the odds are on your side and with market timing that’s exactly what you need – the odds on your side.
For this you need to use momentum indicators, we don’t have enough time to discuss them here – but if you want to win you need to use them, so make learning about them an essential part of your forex education.
If you are trading forex markets and looking for better market timing, remember that forex markets are a game of odds NOT certainties.
If you predict you are not trading with the odds and will lose, prediction is doomed to failure.
Traders who predict tend to be naive or lazy and think making money is easy, it’s not – but its not hard either if you trade the odds correctly.
You are essentially playing the markets, like a good poker plays hands.
He doesn’t predict the odds – he sees their in his favour and then acts from the cards on the table, He doesn’t try and guess what may or may not come out of the pack.
He doesn’t win every hand, just as you wont win every trade – but over time he will pile up a lot of money and that’s your aim in currency trading – play the odds and win big.
If you understand the above in terms of market timing, you are well on your way to making big consistent gains and enjoying currency market success.