What Do You Mean By “Predictable” Or “Predictability” When You Talk About Forex?

Imagine tossing a coin which is slightly bent in a way which is known to you. The bend is almost unnoticeable but it does exist and this fact will become obvious after a long enough series of coin tosses, if you do the book-keeping accurately. Trading the markets with a good trading system is similar. The amount of predictability is small, making it justifiable for people who do not have access to an analysis technique of sufficient sensitivity to talk about “efficient markets” — the markets indeed look “efficient” to their methods of observation. The fact of predictability only becomes undeniable after hundreds or thousands of “coin tosses” (trades).

The world economy is never in equilibrium. “I assume that markets are always wrong” said George Soros. A market actor (investor, trader, central banker) requires finite time to analyze the changing environment and to make a decision. Yet more time and resources are needed to turn it into action visible by the market. No analysis is perfect, and some are less perfect than others. In addition, people who share common educational and cultural background tend to make similar, rather than the most efficient, decisions. Groupthink exists inside communities and large organizations. For these and other reasons, the so-called market inefficiency exists. Once the market inefficiency is quantified, predictive power (and a winning strategy) is only a step away, since such inefficiency — always specific and quantifiable — is in some sense but a deviation from the perfect symmetry which random noise (aka “efficient market”) would possess.