Thursday June 11, 2015 - 10:12:04 GMT
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Currency Forecasting - More Art or Science?
A wit once said that the only problem with making predictions is that you have to tell the future. It is often stated that to know what will next happen in the markets requires a crystal ball. Certainly to “know” with certainty what will transpire is a forlorn quest but forecasting the forex market is all about probabilities, rather than certainties.
There are two common types of forecasting approaches: those based upon fundamental, quantitative data and those based upon technical, chart/price based analysis.
In the case of the former, the forecaster relies heavily upon computer-generated statistical data to discern past historical “event” occurrences and their respective probabilities to extrapolate this into pragmatic market forecasts. There are no certainties, nor should any be expected, but where the forecaster identifies statistically robust results, these can be utilised to make predictive outcomes.
Statistically robust results have long been accepted as providing reliable probability forecasts for future outcomes in a range of fields and the applicability to market forecasting is yet another. Such is the accepted efficacy of this approach that it is utilised by central banks, economic institutes and even hedge funds.
Technical and chart/price based forecasts have the premise that past price action can be used to forecast future price direction (obviously again, within the context of probability outcomes) and there are a range of different technical techniques, indicators, theories and chart-based analyses which can be utilised to this end.
Classical chart analysis identifies many different chart patterns that illustrate the “contest” between the competing forces of supply and demand and their ultimate resolution. Principally, such chart patterns fall into the category of either Continuation or Reversal Formations. The latter depicts trend ending patterns and these include the Head and Shoulders formation, the Rounding (or Saucer) Top, the Double Top and the Rising Wedge.
Continuation patterns on the other hand, as their name suggests, depict corrective pauses or “time-outs” within the dominant trend and these pattern types include such structures as the family of Triangles (Ascending, Descending and Symmetrical), Rectangles, Pennants and Flags.
The Elliott Wave Principle (EWP) contends that mass human psychology as reflected in market prices, follows a predictable path as detailed in the guidelines of the EWP, which maintains that wave patterns develop in the markets and that these occur at all degrees of trend. eg. The larger patterns comprise components of smaller ones and the same patterns of smaller scale combine to make ones of still larger scale.
The EWP has been referred to as the purest form of technical analysis in that it records mass human psychology, as it manifests itself in market prices, registering how crowd opinion (as reflected in market prices) moves from one extremity to another, from optimism to pessimism and back again in a never ending cycle of human behaviour. This repetitive swing from bullish to bearish in every degree of wave formation will continue as long as human nature remains the same.
I’ve been professionally trading and forecasting the forex market for the past 30 years and for me, forecasting the markets is certainly not an exact science but neither is it a pure art; it is a combination of the two, where acting within a prescribed framework of rules and guidelines, I utilise my interpretative judgement based upon three decades of professional experience, to render the highest probability forecasts and trading calls I can each day; ranging from intra-day and short term (24-48 hour) trading forecasts to medium and long-term forecasts.
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Max McKegg24 Rama Crescent, Khandallah, Wellington 6035, New Zealand, Tel. 64-4-479-098
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Disclaimer: Max McKegg & Technical Research Ltd accept no liability whatsoever for any loss or damage that maybresult, directly or indirectly, from any forecast, comment or opinion, information or omission, whether negligent orbotherwise, within this report.
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