Is it possible to predict the Forex market? How to create your own trading strategy?
Indeed, there is much debate on whether the market is random and to what extent, can it be predicted? I do not presume to give an exhaustive answer to this topic, the market is too complicated for this, but I will give two examples from my own practice. The first example does not have a direct relationship to this topic, but it helped me, inspiring confidence and patience, eventually achieving forex forecasting.
Is it possible to predict the Forex market? How to create your own trading strategy?
It was 30 years ago. If anyone remembers, then the game of sportloto was popular. Balls are mixed in the drum with numbers from 1 to 36 and one ball throws 5 balls at a time. I decided to make a program that would allow to predict what numbers will fall out in the next draw. Although theoretically I knew that it was impossible to predict a random process, but I had not just confidence, but some inner knowledge that in this situation I would find a solution. I will not describe all the vicissitudes of this work, but in the end I managed to stably predict 3 figures out of 5.
This was enough to receive an average of 1000% return on one filled ticket. It was very disappointing when, after ten years of hard work coming to a positive result, I still could not take advantage of its fruits. The fact is that the program I did on far from the worst computer of that time EU-1055 was considered more than a day. I had the opportunity to turn on the car on Saturday morning, start the program and wait until the Sunday evening for the results, but on working days when the car was loaded in two shifts it was impossible, tickets for the next lottery had to be sent to Friday, and themselves the rallies took place on Sunday. But the point is not this, but the main conclusions from this work.
Practically there are absolutely random processes, each carries a weak but deterministic component, since it is impossible to single out a process and isolate it from interaction with the surrounding world. Any interaction creates correlation links, and this, in turn, makes it possible, if not indirectly, indirectly, to identify these links and through them to carry out the forecast of the process itself.
In the example I cited, there was one funny moment. Initially, the drum, in which the balls were mixed, was an octagonal cylinder that spun around its axis. But at one point the drum was replaced, making it ball-shaped, at the base of it was located a vibrator, which threw balls falling into the center. And when there was a change of drum, my program crumbled, it stopped predicting, I had to wait six months until new statistics accumulated, and completely change the algorithm of the program, only after that I managed to get stable forecasts again. The essence of the algorithm was reduced to describing the space, which was a drum.
Inside the ball, from the point of its touch with the plane, the vector moved along the inner surface of the ball, its coordinates were expressed indirectly through the numbers of the winning numbers from the statistics of the drawings. The forecast task in the forehead by numbers did not dare. It was necessary first to create a model of space in which these numbers were formed, and then, imposing their own artificial limitations, carry out the forecast of the quasi-random process formed by this space.
To increase the informative value of input attributes, one must create their covariances among themselves, using different laws of combining these features, and to identify the optimal group forming the most accurate model. For prediction, I used a technique close to today’s genetic algorithms.
When I first saw the charts of the Forex market, it seemed to me painfully familiar. Those stats for the sports lotto, which I used, looked almost identical. Sport lotto and the Forex market, with the same difficulty of forecasting, are hollow antipodes. By their scale, they can be compared as a drop of water with the ocean. If in the sport lotto the deterministic component is very weak, then in the events on the Forex market on the contrary, random processes constitute an insignificant part.
All the numerous events, both in the market itself and in the world economy and politics, having a direct impact on the market, have deep cause-effect relationships, which, given the lack of information about them and the complexity of their interaction with each other, appear to be random events.
Since the year 2000 I started work on studying and modeling the Forex market. My conclusion is to predict it absolutely absolutely, but like any complicated phenomenon, it is not solved by primitive technical means such as indicators and oscillators. As a result of my long work on studying the Forex market, I came to conclusions that will be of interest to many, and they relate not only to the technical side of the problem, but touch upon the deep nature of the market.
The world in which we live is so complex and multidimensional that it is not possible to reduce it to a simple formula. The processes taking place in it, although they seem obvious at first glance, but when examined in detail – it turns out that behind this apparent evidence the inner nature is completely different than we imagined, and in order to understand it correctly, we need to change the stereotype of our thinking.
For example, coal is a solid form of matter for us, but if we change our surface perception and try to understand its inner nature, it turns out that beyond the seemingly invariable dense matter lies a dynamic energy structure consisting of multidimensional force fields connecting the myriad elementary particles and forcing They move in their orbits with huge speeds.
Inside, we do not find anything solid, everything consists only of energy, and solid matter is only an illusion of our perception because of the limitations of our senses. Solid hard coal contains within itself a powerful energy potential, which is manifested during its combustion, and the energy hidden in it passes from one form to another. I say the obvious things, hoping that you will be able to draw analogies, and all the further that I’m going to say – will be just as obvious.
Everything in this world is energy, some of its forms are expressed explicitly, others are hidden behind the illusion of matter, while others in our dimension manifest themselves only as symbols through which it is possible to access the very processes that follow on the subtle plane and about the existence of these processes we often do not even suspect.
Money is energy, and like any energy, they do not appear anywhere, and do not disappear anywhere, they obey the law of conservation of energy, passing from one form to another. Dollars, pounds, yen are just symbols behind which different types of energy are hidden, and the Forex market is a huge transmutator that converts the energies of one kind into another. Behind the obvious external side of these phenomena lies another, not accessible to our limited perception, unable to penetrate into other dimensions.
When moving or converting money in our world of effects, there is a movement of energy flows corresponding to the potential of this money in a subtle causal plan that is not accessible to our senses without special training. And the Forex market itself is an information energy system that includes not only technical system facilities, but emotions and psychology of all its participants, as well as the diversity of various energy flows corresponding to the movement of money around the world. This energy creates a powerful Egrigor, which as a magnet attracts additional energy of those who touch it, on the other hand – it influences the psychology of all who are in the sphere of its action.
Knowing what a huge amount of money is circulating on the Forex market every day, what emotional emotions everyone is experiencing in trading on it, one can imagine that huge energy potential and the power of energy flows that accompany his work. In the movement of these energies there is nothing accidental, they are subject to certain laws.
For all its globality, the Forex market is very sensitive and vulnerable. Events that occur all over the world have a direct or indirect impact on it. The statements of major politicians and financiers, military and political conflicts, the state of the economies of different countries, fluctuations in prices in other financial markets – all this leads to a change in the situation on the market itself. In addition, there are attempts to directly manipulate the Forex market.
This is trying to do as some big players, carrying out risky speculative operations, trying to bring the market out of balance. And also some structures and persons who have mastered the techniques of control and energy management, and are trying to effect directly on energy flows on a subtle plane, thus provoking the movement of prices in the right direction for ourselves in our physical dimension.
Working in the Forex market, I myself personally felt these attempts and faced with someone else’s energy, and someone else’s will, putting pressure on the price movement, quite consciously perceived this, having sufficient experience in working with energy techniques.
The main interference and distortions, or what can be considered a random component of the Forex market and noise, are made by dealing centers, as well as communication channels. About how this happens, I think, each of you has his own idea, not once facing this in his personal work. What to do in this confusion of various opposing interests, forces and energies, where to go to the poor trader to find his place under the sun?
You can learn to feel the market, and predict it without any technical aids. This can be mastered by everyone with proper training. To do this, at the first stage, you just need to watch the movement of the price on the minute chart of any chosen instrument (but only on the same one, since each has its own specifics, and until you learn to feel it, work with one). How much time it takes is unambiguously difficult to say, it is purely individual, someone has a half year, someone may have a year.
It took me two months, but most should not be guided by this figure, the development of this method helped me many years of practice of various energy techniques and meditations. Although these practices are not mandatory for mastering this method of forecasting the market, but using them can significantly accelerate the entire process of development. An important detail, you should not try to guess the price movement at this time, as trying to guess, you distract your subconscious from work, and everything happens exactly at the subconscious level.
The mind tries to guess, but it is not able to look into the future, it only hinders this process, it needs to be calmed down as much as possible, centering its attention on the price movement and not thinking about anything without an outsider. Just watch, trust yourself and have patience. Graphs of price movements are only symbols through which contradictory and multipolar events in the world economy are expressed. Price charts, like symbols, help to tune in to those energies that shape and guide the movement of the market.
These energies appear, and their direction is formed long before the price on the chart changes. By centering your attention on the graph, you will connect to these energies at the subconscious level, start to feel them. And gradually the sense of knowledge will come, it’s just like knowing where the next tick goes the moment before it happens. When you can accurately predict the direction of the next tick, you can proceed to the second stage.
Open several (4-6) minute charts on different instruments that are well correlated with the instrument you are going to work on. And just like in the first case, just watch the movement of prices, trying to catch the mutual dynamics of the movement. Gradually you will begin to feel that the combination of the dynamics of the movement of some instruments predetermines the movement of others, and you will know from the mutual behavior of different instruments, where the price of the instrument you are interested in will move.
Then you can proceed to the third stage of training – start trading on a demo account using the acquired skills. In order to find out the limits of their capabilities, you need to try different trading strategies: from the most conservative, to the most aggressive. You need to learn how to lose by deliberately entering difficult situations, so that after that, with the help of acquired abilities, it is most painless to get out of them.
It is necessary to experiment in this not only on a demo account, but also on a real one – the psychology of working on a real account is significantly different. You need to be prepared for the fact that small losses are inevitable, but you need to take conscious risk. If you want to understand the nature of the market, learn to respond quickly to changes in it, to predict its behavior, you must take into account all of the above.
Forecasting the Forex market is absolutely the real thing. Who has confidence in himself, can develop the appropriate abilities, who does not have such confidence, can do this with the help of technical means, although one does not contradict one another, but, complementing each other, can give the most effective result.
Such is the psychology of man, that he needs to have points of support for making decisions and moving forward, without them a stop occurs and most who are not accustomed to trusting their intuition are lost and can not make the right decision. Indicators and oscillators are such points of support. Although they themselves reflect only the past price movement and can not give any objective picture of the future, they, like a placebo for the patient, give some certainty that you have taken the medicine and everything will be fine, although in reality it is not a medicine, but only it substitution, not bringing any good or harm.
Everyone who enters the Forex market for the first time feels like a small child who can not walk, and that he gets up and goes, he needs the hands of his parents who will put him on his feet and give a foothold. But as we learn to maintain balance, we must abandon the pylons that tie us to the past and prevent us from moving forward. Indicators and oscillators have become a whole industry of business, a lot of books are written, dealing centers conduct courses on working with them, the terminal is considered to be steeper, the more it contains different indicators and oscillators.
We are told that we can not do without them, and most traders, like hypnotized ones, try to build their trading systems on them, although most understand that by their very nature they can not give any forecast, at best they say with some delay about the change trends in the movement of the market.
In my opinion, most successful traders who have worked in the market for many years, although they use indicators, and many sincerely believe that they help them to trade, in fact, over many years of practice they have developed an intuitive perception of the market, although they often do not suspect this. This is the secret of their success, not indicators and oscillators, and the sooner everyone realizes this, the faster will develop the abilities described above, throwing away the crutches of technical and fundamental analysis, which only hinder rapid advance.
On what principle is the construction of most trading strategies based? On one simple and obvious fact. If the market moved in one direction, then the probability that it will continue to move in this direction is slightly greater than the probability that it will reverse it dramatically. This follows from the fact that the market is inertial, and although there are fluctuations in a short time interval, one way or the other, the main trend changes slowly.
Based on this principle and having seen with the help of indicators the direction of the trend, traders, consistently opening small lots, try to cling to the wave of the trend. And with the help of Stop Loss and Trailing Stop, minimize losses if the market turns in the opposite direction. There is no question of any effective analysis and prognosis here at all. And since the difference between the probabilities of the above-mentioned fact is not great, then the effectiveness of trade strategies based on this principle, and as a consequence, and profit – is very low.
The second option for building trading strategies, which is much less common, is based on the assumption that tomorrow the market will be the same as it was yesterday. Based on this assumption, the parameters of indicators and other technical tools used for analysis are optimized on historical data. Further on the parameters found, indicators and other technical tools are adjusted.
Initially, the assumption that the market is unchanged is not true. The market is dynamic, and its dynamics changes many times during the day. This is due to which market dominates, Asian, European or American, with the arrival or departure from the market of major players, with the release of news and other reasons about which I spoke above. Parameter optimization is a long process, and it is not possible to implement it in real time.
As a result, optimization does not correspond to the realities of the market, and does not allow for a qualitative adjustment of the tools used, besides these instruments reflect only the past state of the market. The trading systems built on this principle, although they give a slightly better result than in the first case, but, nevertheless, are not very effective.
Is it possible to create effective trading strategies? Yes, perhaps, only the principles of their construction should be adequate to the complexity of the object. It is at least naive to expect to build effective strategies based on indications of primitive indicators.
These should be expert systems that can monitor in real time the changing dynamics of the market, able to combine all available data in order to increase the information content of the signs. Build models and on their basis synthesize new signs that reflect market trends, which in real terms we can not get. This is due to the fact that all the information we have available is a well-mixed cocktail – it includes a lot of complementary and mutually suppressing data about the nature and existence of many of which we do not even suspect.
According to artificially synthesized signs, if they adequately reflect the existing trends, you can make both short-term and long-term forecasts. This is the algorithm of an effective trading strategy, and with its software implementation – a trading system. However, this algorithm, of course, must take into account the individual characteristics of its creator. In part, this is embedded in the strategy automatically, everyone who creates it, transfers to it their knowledge and experience, their fears and their temperament.
But only in part and inadequate. It is necessary to consciously approach this process of creating a strategy. The system is only a tool, and so that it effectively works in your hands – it is necessary that it be like a continuation of you, like a sword – is like an extension of the samurai’s hand. And until this harmony is created, the maximum result can not be achieved.
How to create it? To create it, you need to use the example above. If you at least to some extent master what I described, starting to realize the market, to feel the energies forming it, you can so position yourself in working with it, that when you create your strategy you can, perhaps even not fully realizing it, invest in her own perception of the market that corresponds to your inner harmony with him. This will give you the opportunity to conduct effective trading and reduce losses to almost zero by creating a model that gives an accurate forecast of the direction of the trend, and allowing you to always be a step ahead of any changes, whatever causes they are caused.
To create an adequate market model, it is necessary to use the maximum possible number of trading instruments. The market is formed from all instruments, they are all interconnected and influence one another. Mutual dynamics of instruments is a key moment in the synthesis of the trend model.
When building a model, it is desirable to use a pottery story, since the methods by which candles are formed, although they make the picture more visual for visual perception, but at the same time there is a loss of a significant amount of information reflecting the dynamic characteristics of the market. These principles of candle formation were created at a time when there were no computers. Then it was important to make incoming information more visible, even at the expense of its partial loss.
Unfortunately, it is difficult to find a pottery story, especially since it should be synchronized for all instruments used for calculation, and have a depth of history of five to six years. Besides, it is hardly possible to calculate a model with such a volume of input data for most computers used by private traders.
What is the solution? Build dynamic models that use the principle of self-organization. At the same time, it is possible to limit ourselves to a not too great prehistory. On it to produce training models and synthesize new signs, reflecting the dynamics of the trend. The model should be trained at every step when new data is received, and dynamically monitor and predict not only all market changes, but also recognize emerging trends towards these changes. Based on this model, you can build a short-term forecast of market dynamics, which in turn will allow for effective trade.
These are not idealistic wishes, this is a very real solution, implemented in practice. The software implementation of this algorithm can be different, it depends on the experience and preferences of the developer, the knowledge of the corresponding programming language, the availability of specialized packages that allow creating models of the market. But it must be said that this is a difficult task. For its effective solution you need to have a lot of patience and not expect that without a long market study, without numerous experiments it will be possible to implement.
Its solution is akin to the invention. I have studied the market for many years, built dozens of different models, coming to a standstill and starting again and again. And when, it seems that I have already tried everything, but I have not received an acceptable result, I began to experiment with the development of the sensory perception of the market energies described above. After mastering this skill and the month of trade, without using any technical means, it suddenly came to realize that the optimal strategy that corresponds to my understanding of the market.
The algorithm of the trading system was formed, which could no longer be realized. Of course, the decision would not have come so quickly, and it would not have been possible to implement it in such a short time, had it not been for the previous years of work. The necessary critical mass of knowledge and experience was accumulated, methods of technical realization were perfected, the rest was already a matter of technique.
At the first stage of the implementation of the algorithm, I synthesize the trend model for the instrument on which I intend to trade. According to the model, two step forecasts are made. The first step gives a forecast for six points ahead, in the second step, using the results of the forecast of the first step as input arguments, a forecast of six points ahead is given. In the end result: the construction of a trend model, its training on new data, and two step forecasts – all this takes less than one minute, and the program ends its work by the arrival of a new bar on a one-minute timeframe.
I tried to do a five-step forecast, with the forecast horizon increasing to thirty points ahead, the results were quite satisfactory. This algorithm works on all timeframes and with any tools.
I showed one of the possible approaches to predicting the Forex market. If one has found a way and went through it, then many can do it, although I’m sure that there are already systems that are close in level to what I described, as well as much more effective, but their developers prefer to keep silent about it.
I, probably, disappointed the article of many of those who, having come to the Forex market, expected to quickly write from the materials available in MetaTrader 4, a simple trading system and earn millions. But I hope that this article inspired and continued to search for those who, having spent a lot of time and energy, and not having reached a satisfactory result, full of doubts, are increasingly asking themselves whether it is worthless to waste time, possibly efficiently there is no solution at all. The solution is, I showed only one thing, but I’m sure that there are a lot of them, or rather each has its own, and everyone is able to find it in accordance with the conditions that I mentioned earlier.
I foresee the question that will arise in reading my article: with what programs did I implement this trading system? Once again I want to emphasize, technical means are secondary, I had them throughout the whole time of work, and I did not succeed until a clear idea of the trading strategy and the algorithm that needed to be realized. Only when there is an understanding of the market and the processes that occur on it can you create an algorithm that adequately reflects these processes.
If you look at the market as a black box in which you do not know what is happening and try to simulate it, hoping that the computer will pick up the model you need – with the help of existing software and technical resources, in my opinion, this task not to solve, the market is too complex a phenomenon for this. This will become possible when more powerful hardware and software with artificial intelligence, working according to the principle of heuristic self-organization of models, appear on several orders of magnitude.
But today we can solve only small local problems, and for their implementation we need a clear statement of the problem and an algorithm reflecting these local processes. When this algorithm is created, it can be implemented by any means that are available to you, even limited only to the programming language MQL4. For example, when using the PolyAnalyst package http://www.megaputer.com, which uses the principle of Data Mining in its work, it is possible to train the neural network and then formalize its parameters.
This results in a nonlinear polynomial connecting the output of the network to its inputs, this polynomial can be added to any indicator or trading system written in MQL4 or any other programming language, thereby obtaining a complete neural network without using any external packages. In this package, there are many different possibilities for effective modeling, discovery of laws, clustering, search for dependencies, although when used as external applications to date there are more effective programs.
When I created a program for predicting sports draws, although this task was not inferior to the Forex market by the complexity of forecasting, there were no specialized packages for this, the method I used was just a methodology, to develop algorithms and write the program myself in the programming language PL1.
In conclusion of the article I would like to look into the near future and see the ways of development of trading. With the growth of computer power and the development of software products that use the principles of knowledge search, self-organization, and self-learning forecasting algorithms, effective mechanical trading systems will take an increasing share in trade. Traders who expect to trade manually, using trading systems built on the basis of indicators and oscillators, will find it increasingly difficult to compete and stay on the market.
The development of computer technology is proceeding in geometric progression. The first data on the creation of experimental samples of biocomputers have already appeared, whose productivity is billions of times higher than existing ones. The further, the more struggle in the market will no longer be between people, but between robots, and those who have more powerful technical resources will not be able to win, technical resources will allow creating programs of any complexity, and those with a more effective trading strategy. In the end, in about twenty years, the financial markets in the form in which we see them now will cease to exist, as they will become absolutely predictable.
What I said in the article is true not only for the Forex market, but for any other financial markets. Forex is the largest of all, the most dynamic and difficult to forecast. All the questions that I posed here, I asked myself, and as a result of my own search I sought answers to them.
Concluding the article, I want to say one more time, I do not claim for exhaustive knowledge and presentation of the material. I just talked about my little experience in studying the nature of the Forex market, and about my conclusions based on personal practice. Some will agree with me, most will doubt my conclusions, some will consider all of the above – quackery.
It’s like in the famous parable of the four blind men who approached the elephant and tried to get a feel for it. One took hold of the tail, the second – by the foot, the third – by the trunk, the fourth – by the tusk. When they were asked what kind of elephant they were, they began to swear and fight, trying to refute each other, and to defend only their idea of an elephant.
I just touched the tip of my tail, and I made my conclusions. I hope that this article will give impetus to a broad discussion of this topic. There will be statements about other aspects of the problem from researchers with different experiences. And so, from the separate multi-colored fragments, an integral mosaic will be built, in which the picture of the market can already be clearly seen