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3 years ago
The Phenomena of Chaos Theory!
Having dabbled in the Forex markets, or should I say traded on a practice account, I can't say I'm qualified to give any advice on the matter. Even though, at one time, I somehow managed to achieve an 80% win rate. Then for a number of external reasons had to take a long break and simply lost and forgot the system I was using to get such good results.
Now with renewed interest, wondering around - bewildered trying to work on another winning system but unfortunately not achieving very much, I came across the information below.
One of the subjects of interest in my previous studies was the 'Chaos Theory,' which really is quite fascinating, and scientist have been trying to get the bottom of for many years. In many ways the stock and currency markets behave in a chaotic fashion, with seemingly no rhyme or reason to its daily movements. Or, the long and short of the matter, highs and lows. Which to the untrained eye looks daunting.
The following description on the of foreign exchange markets will give the newly interested an insight into its workings, and the link below will take you to brief description on the Chaos Theory:
By kind permission of Power Trading Signals:
FOREIGN EXCHANGE RATES.
An exchange rate represents the value of one currency in another. An exchange rate between two currencies fluctuates over time. The foreign exchange market is the largest and most liquid of the financial markets. Foreign exchange rates are amongst the most important economic indices in the international monetary markets. The forecasting of them poses many theoretical and experimental challenges. Foreign exchange rates are affected by many highly correlated economic, political and even psychological factors. The interaction of these factors is in a very complex fashion. Therefore, to forecast the changes of foreign exchange rates is generally very difficult. Researchers and practitioners have been striving for an explanation of the movement of exchange rates. Thus, various kinds of forecasting methods have been developed by many researchers and experts. Technical and fundamental analysis are the basic in major forecasting methodologies which are in popular use in financial forecasting. Like many other economic time series, Forex has its own trend, cycle, season, and irregularity. Thus to identify, model, extrapolate and recombine these patterns and to forecast Forex is a major challenge. Foreign exchange rates were only determined by the balance of payments at the very beginning. The balance of payments was merely a way of listing receipts and payments in international transactions for a country. Payments involve a supply of the domestic currency and a demand for foreign currencies. Receipts involve a demand for the domestic currency and a supply of foreign currencies. The balance was determined mainly by the import and export of goods. Thus, the prediction of the exchange rates was not very difficult at that time. Unfortunately, interest rates and other demand} supply factors had become more relevant to each currency later on. On top of this the fixed foreign exchange rates was abandoned and a floating exchange rate system was implemented by industrialized countries in 1973. Recently, proposals towards further liberalization of trades are discussed in General Agreement on Trade and Tariffs. Increased Forex trading, and hence speculation due to liquidity and bonds, had also contributed to the difficulty of forecasting Forex. Generally, there are three schools of thought in terms of the ability to profit from the financial market. The first school believes that no investor can achieve above average trading advantages based on the historical and present information. The major theory includes the Random Walk Hypothesis and Efficient Market Hypothesis. The second school's view is that of fundamental analysis. It looks in depth at the financial condition of each country and studies the effects of supply and demand on each currency. Technical analysis belongs to the third school of thought who assumes that the exchange rates move in trends and these trends can be captured and used for forecasting. It uses such tools as charting patterns, technical indicators and specialized techniques like Gann lines, Elliot waves and Fibonacci series.
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