Many forex traders look to trade scientifically using the theories of Gann, Elliot and Fibonacci to name but a few – which is best though and how do these theories work?
Let’s find out.
Scientific theories postulate that as human nature is constant.
What has happened in the past will happen again and repeat itself in the future and all you need to do is trade these repetitive patterns – this is really the basis upon which technical analysis is based#.
Scientific theories take it a step further - by saying their theories represent “natural law” and can predict the future.
Forex traders buy these theories in huge numbers and believe them - but they don’t work.
Lets take the theories of Elliot (who died a pauper) and W D Gann (who had to sell courses to make a living) and ignore the fact they couldn’t make money out of their own theories and look at why these theories cannot work for anyone. I have totally ignored Fibonacci, as this is not a financial theory at all but was devised to solve a problem to do with copulation of rabbits in the 12th century!
So why don’t they work?
The answer is obvious:
If there was a scientific theory for market movement we would all know the price in advance and their would be no market! A market moves due to the difference of opinions and is unpredictable.
This really is common sense and trading is really an odds game not a scientific theory but the far out investment crowd can't get enough of these theories and buy into them.
Of course there is another problem with these theories which is never mentioned:
If a theory is scientific then it should be objective and tell you exactly what to do as it is following the law of the market. Check out Elliot wave, it’s supposed to be objective but it's totally subjective!
It’s a scientific law and you have to decide which way prices are going -does that sound scientific to you?
Fibonacci levels are great though, you get specific retracements – try and use them and see how quickly you wipe out your equity! This is simply the dumbest theory of the lot. No disrespect to Leonardo Fibonacci though, he had no idea when he devised the theory in the 12th century it would be hijacked by financial traders!
The fact is these theories appeal to lazy, naive or far out investors and its obvious there is no scientific law that dictates market movement.
If you want to know how markets really move then look at some sensible theories and perhaps the best one to start with is Dow Theory.
Trading forex (or any other financial market for that matter) is simply about trading odds nothing more.
Now the fact you are trading odds doesn’t mean you can’t make a lot of money – you can.
Don’t look for short cuts or think you can cut the risk with scientific theories you cant – you need to do your homework and come up with a theory to help you trade the odds.
If you do this correctly you could soon be building big profits.
Leave the scientific theories to the dreamers and concentrate on the reality of winning.
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