Do you Forecast Forex or Use Reality Trading?

When you first became aware of Forex, you may have been introduced to the idea that you have good chances of forecasting its movements because Forex exhibits predictable patterns. Obviously, if this is true, then you would certainly have chances of gaining some handsome profits. Of course, this is the dream of all traders whether they are novices or experienced.

How valid is this claim is the key question? Forex definitely generates major trends that are produced by such events as growing risk appetite and flights to safety, etc. If you were to study the Forex market psychology that initiates many of the well-known Forex patterns such as head and shoulders, then you could fine-tune your forecasting skills that would definitely rake in the cash for you.

However, this is much more difficult than you would originally expect. The sheer truth is that the movements of Forex follow no simple or complex formula, but seem to proceed in some type of ordered chaos.

If you studied trading charts for long enough, then you can definitely identify that Forex creates trends that do have a tendency to exist for some time. As such, you are probably well-advised to attempt to trade them as opposed to trying to forecast their creation.

If you do so, you must ensure that you do not fall into the novice’s trap and focus on studying trading charts using very short time-frames. Instead, you must quickly acquire an understanding about the power of the longer time-frames.

You need to realize that you can gain a better and more meaningful picture of the movement patterns of currency pairs if you do so. Also, you will find that longer time frames act as filters by smoothing out much of the random noise that Forex generates. This noise problem becomes increasingly amplified when you utilize time frames of shorter duration.

In fact, when you start trading you should not really consider using time frames of less than one hour. You will discover that you can detect Forex features such as trends much better by using the daily and weekly ones.

You need to realize that although a currency pair is following a trend and could have been for some time, there may still be rapid price fluctuations that are produced every minute or hour. In fact, you could conclude that the trend contains and controls many smaller price movements within its limits.

As such, the problem that you will face if you persistently use shorter time frames is that you will find that your trading is constantly diverted by Forex noise. However, should you select the wiser choice and utilize longer time-frames, then all this noise will be filtered out providing you with much clearer trading opportunities.

You need to be aware that many novices cling to the shorter time frames because they believe that the greater levels of action created by the random noise will make them rich quickly. This idea is badly flawed and will only result in consistent losses,not to mention big money ones!.