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Forex Trading is a Paradox

Discussion in 'Forex Forum' started by meanvel, Feb 27, 2015.

  1. meanvel

    meanvel Guest

    Here is the funny thing about risk...

    Whenever someone discovers something about the market that is not efficient and the information about it becomes public, the behavior is then priced out of the market as enough participants take advantage of it. If you have a strategy that works, take it secret to your grave if you want it to continue to exist.

    The mechanism of how things get priced out is really simple...

    Say someone discovers a momentum strategy in the past... Where if the market is rising at a certain speed measured by like (Percent or ATR per 5 Minutes) where it generally continues onward for at least X amount of time before stopping. How would such a working strategy stop working because of a majority of participants becoming aware of it?

    Well, instead of the market continuing up for the amount of time, participants who know the signal suddenly pile into the market on it causing the market to get extremely overbought and snap back against their positions.

    Support levels can have the same problem... If too many people think a specific support level is rock solid... The long positions they establish on that level become a tail risk, if prices go below their levels they can all blow out simultaneously slamming the market lower.

    Whenever your read something about some strategy where it comes to buying a strong currency and shorting the weaker currency, etc... Realize that if the majority of active traders know about it, it's probably priced out. You cannot generate alpha without knowing something that the majority of participants do not.

    There is no Holy Grail formula because the knowledge of the existence of the Holy Grail would cause it's existence to disappear. The only working strategies that exist are theories and strategies developed by individuals/small funds which take advantage of the majority of market participants behavior. You must know something others do not about their behavior.

  2. Diego San

    Diego San Member

    Dec 10, 2019
    Will forex trading make you rich? In spite of the fact that our natural reaction to that question would be an unequivocal "No," we ought to qualify that response. Forex trading may make you rich in the event that you are a hedge fund with profound pockets or a curiously talented currency trader. Yet, for the average retail trader, as opposed to being a simple street to wealth, forex trading can be a rough roadway to enormous losses and potential penury.

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