While a trading novice on Forex market starts facing some hurdles in trading, the first thing coming to mind is that for having a complete success on the market it is required to learn forecasting the price movement. Having investigated the market fundamentals he will understand that a fundamental analysis should be used for long term suppositions and the technical one – for short term outlooks. Puzzling out the market history where the trader works he will notice that there are repeated time periods. During a long period of time the markets have been moving up and down in long cyclic periods. Watching over the chat there can be seen short term shaping figures on it which repeat again and again. As soon as the trader begins using mathematical indicators in trading he will see that certain combinations of indicators and figures have a circulate feature, as a rule, near the peaks and bottoms.

Observing the so called patterns of different types the trader must calculate big size profits fast which is possible only in case the trader takes a right decision at a right moment.

Many beginning traders would decide that the market is no less than self-repeating mechanism. If a trader can learn peculiar patterns and cycles then a big profit will come for sure.

In order to reach this target each trader falls to getting wise to the market attentively and scrupulously using all available literature. Despite a big quantity of published Forex literature, offered automatic trading systems during the first year of running activity 75% of traders lose their funds. Taking a longer time frame into consideration– 95% of traders bear losses. Nevertheless, just a few people wonder if there are exploitable repeating time periods of prices.

Human nature is so structured that people are more sensitive to ideas giving a hope. People believe what they want to believe in, despite that there is a lot of evidences to the contrary. Luck which comes up to a trader makes him believe in false assumptions more and more.

Traders who failed on the market have slightly deformed idea of markets and activity which must be run there. For such traders it is rather complicated to range aside from misapprehensions and that is why they are condemned to misfortune. And the market is organized in such a waythat it increases these false ideas.

 The Chaos theory excludes the opportunity of studying the market history by mathematical and statistical methods and revelation of some repeating time periods and cycles existence.

Markets are non-linear dynamic systems. The Chaos theory consists in a mathematical analysis tool of such kind of non-linear dynamic systems. This tool application in practice shows that market prices have a random character with a small trend component. The size of trend component depends on the market where the trader works and the chosen time frame.

In order to explain the chaotic systems the fractals are used. Fractal is an object with a self-similarity feature, i.e. an object where its parts are similar to the whole object.

One more peculiarity of chaotic markets is “sensibility to initial conditions”. That is what makes the dynamic market systems hardly predictable. As there is no chance to predict the market situation absolutely accurately and due to a great many of inaccuracies and mistakes in situation description – with a course of time it becomes impossible to make a precise outlook as the system is too complicated. 

A lot of traders and professionals of currency market hypothesize that intraday trading is nothing else than an effort of random noise trading and results in wasting time. Eventually, those who trade within the day are on the skids. However, at the same time the experts assert that long term price movements are not random. The trader is able to play successfully proceeding from day and week chats if they follow the trend.

Here a reasonable question may arise – how come on one market short term price movements have a random character, while the long term movements consisting of them have no random character.

But this paradox takes place. The system has a random character in a short term period and absolutely definable in a long term one.

There are no short term time periods and repeating short term cycles which would have values from the aspect of predicativity.

Time periods of prices and indicators used by a trader for trading can be easily found in any set of random digits. Therefore, chances to predict the prices in a short term period by means of technical analysis are almost nil.

Traders working within a short time frame are initially destined to fail and lose the money. It is not just a theory, it is an evidence based fact. Traders ignoring this fact ride for a fall. Does it mean that the market is fluctuating in a random way and all traders are doomed to failure? It is not so!

A trader can use a long term trend component of the market in order to get statistical advantages. That what trend observing systems make.  It explains why good trend observing systems traded on diversified markets bring profit annually while the traders working during the day bear losses in a long term period.

Trader’s success depends on the trading system and on that which market the trader has chosen for running activity and on a discipline observed by a trader in his system. Trader never knows at what moment the trading system will bring its statistical advantage. The best thing the trader can make is to create it without historical data adjustment and test it.

An easy way to avoid the adjustment is to use equal rules for all markets and try to test the system for all maximal possible risks. If the system benefits on many markets during a long period of time then such system is most likely to be adjusted.

In order to raise the chances of making profit an essential factor here is the trading system optimization, the portfolio structure and account size. As the statistical advantage comes from trend following a trader can increase his chances focusing on markets with more expressed trend component.

Despite that there is an opportunity to measure the trend inclination of different markets in a historical prospect, however, it does not give a chance to wise up which market will have more expressed trend in the coming half year. In order to decrease the short term risk a trader must diversify the risks.

Additionally, one of the major aspects of risk diversification is control over the ratio of possible losses and account size. For reducing the losses you will have to receive lower profit. It does not seem possible to assess an optimal portfolio composition until the trader determines the general historical losses while trading with full portfolio.

However, there is an alternative used by the most traders. As a rule, they do not have any idea about if their trading technique gives them a statistical advantage. Often the traders consider that if something is written in books or comes from a famous trader or costs much it must help them in trading. They use approaches which cannot be technically tested.

Trader must remember that trading on the market can be a pleasure for you, but without the right approach it will be just a pleasure which you will have to pay for…