There are many trading theories which believe in mathematical order in the market and you can predict the future. Human nature is constant and therefore if you know the law of market movement you can make money but what are the best scientific theories?
The three major ones are those based on Gann and Elliot wave and the Fibonacci number sequence.
They all claim to be scientific but to be a scientific theory, they must conform to the following:
- Be totally objective with a set of rules to follow
- Work all the time.
This is the definition of a scientific theory and none of the above are.
Gann and Elliot wave are totally subjective and while you get various levels you can buy or sell to with Fibonacci, they certainly don't work every time!
Markets are not scientific and while human nature is constant, it cannot be predicted with scientific accuracy and that's a fact.
This is why all the scientific theories and complex computers today have not increased the amount of winners. Indeed, if a scientific theory did work we would have no market, as everyone would know the price in advance.
How to Win Without Science
A great book which any speculator can learn from is the Zurich Axioms.
This book devised a set of rules which a group of Swiss bankers, who used them to get rich and it lays out a number of rules and principles for speculators to follow and one of them is on forecasts which is very true.
"Human behavior cannot be predicted. Distrust anyone who claims to know the future, however dimly".
As the books points out if astrologers were always right they would all be rich and there not. Predicting markets is actually doomed to failure just like astrology and the book makes clear:
"Do not look for order where order does not exist." And the book goes on...
"The Historian's trap is a particular kind of orderly illusion. It is based on the age-old but entirely unwarranted belief that history repeats itself. People who hold this belief - which is to say perhaps ninety-nine out of every hundred people on earth - believe as a corollary proposition that the orderly repetition of history allows for accurate forecasting in certain situations.... Don't fall into this trap. It is true that history repeats itself sometimes, but most often it doesn't, and in any case it never does so in a reliable enough way that you can prudently bet money on it".
In hindsight you can prove anything and this is known as the chartist illusion
"Beware the chartist's illusion - it is characteristic of human minds to perceive links of cause and effect where none exist"
You can of course when you have all the facts at your disposal see things as orderly when there not.
Traders do this all the time - they test rules and parameters over a section of data and bend rules to fit it and think it will work in real life but of course the exact data sequence never repeats again and they lose.
Ever wonder why all those forex robots sold online, never make money in real life - despite having great track records?
The answer is the track record is a simulation backwards which appears logical- but when it's traded going forward, it collapses.
Why You Can Make Money
Despite the fact markets don't move to science you can still make money from them, if you see them as an odds game.
If you took a game of poker as an example of an odds game and talk to the best poker players, they know they are not going to win every hand - but they are confident of winning longer term. Why?
Because they know that if they bet on high odds hands and fold or pass by low odds hands, they will win longer term.
If you take trading forex who are some of the top traders in the world?
You guessed it - poker players!
So forget about predicting and science, see forex as an odds game and trade the reality of price change sure you wont win every trade but you will win more than you lose and this can mean huge profits.
Don't look for perfection look to make money.
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