Forex Trading Mathematical Algorithms - Finding the Best for Long Term Consistent Profits
Posted on Apr 30, 2010 under Forex Trading Software |
As computers and software applications have become more powerful, traders develop complex mathematical algorithms to help them increase profits and decrease risk. Let’s take a look at them in more detail…
The first point to consider is this - in the last 30 years of trading the number of traders who lose (95%) and the number who win (5%), has remained the same over the years DESPITE all the advances we have seen in technology.
This leads to a compelling conclusion; the appliance of complex, mathematical equations to Forex has not helped increase the number of winners.
Odds and Certainties
The reason it has not helped is that Forex markets cannot be predicted with mathematics, because they are simply an odds based market and don’t move to any mathematical equation and if something doesn’t move to a mathematical objective equation you won’t make money with mathematics! This doesn’t mean you can’t make money, you can but you need to think simple rather than complex, as simple systems are better for trading the odds.
Simple Systems Work Best
Simple systems work best in Forex trading and always will because they are more robust than complex ones have fewer elements to break and when you are trading odds not certainties that’s all you need.
A System with 1 Rule that’s Made Countless Millions
I knew a trader once who make a million dollars with a 1 parameter system based on standard deviation and I have used another system outlined below which has worked for 20 years and made me and other traders huge profits. This one is called the 4 Week rule by trading legend Richard Donchian - here is the rule.
Buy a new 4 week high on a Forex chart and hold the position. Wait for a 4 week low to be exceeded and then take out the long and go short. Keep doing this, as 4 week highs and lows are hit and always maintain a position in the market.
Simple? Yes it is - but try it for yourself and you will see how much money it makes.
Using NASA Technology to beat the Market
I stated using the 4 Week rule after trying an expert system which had been developed by an ex NASA engineer and I was taken in! Hey this guy helped put people into space, so imagine what his Forex trading system could do in the market! Now his system was clever, lots of parameters and rules and the software looked lovely but guess what happened?
You guessed it - the so called Forex Expert Advisor turned my account to dust in about 3 weeks.
The Limitations of Technology in Forex
We marvel at how technology enriches our lives and we think it can do the same in Forex - but it can’t and never will, because in Forex you deal with odds not mathematical certainties and keeping it simple, is actually the way to enjoy currency trading success.
Kelly Price
http://www.articlesbase.com/currency-trading-articles/forex-trading-mathematical-algorithms-finding-the-best-for-long-term-consistent-profits-706600.html
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