Forex trading: Rules for managing assets. Part 2

Classics are right

Stability of price movements on financial market is as unwritten rules of preference: If I would know I would live like Soros”. As shown in previous article, gurus of financial market at all don’t focus attention on stability of price movements. Certainly, it is possible to object that classics of exchange trade don’t pay attention to steady trends because manage huge assets with the help of which it is possible also most to generate a trend. Nevertheless, classics are right.

The pursuit of steady trends on financial market is a pursuit of a myth. Steady trends in the market don’t happen. If it was so it would be possible to predict price movements precisely. Unfortunately, financial markets aren’t predicted. It should be accepted as an axiom. Attempts to prove stability of price movements in the market are attempts to give the exact forecast of the future.

Mathematicians were the first who has tried to apply methods of mathematical modeling to the description of behavior of the prices at stock exchanges. Results in this direction while is small, though it is. At the heart of market mathematical models lie (or as them still name- trading systems) algorithms of the forecast of movement of the prices made on the analysis of the historical data. The structure of trading system generally represents certain formalization of financial market. The large quantity of researchers is implemented strenuously by so-called optimizing market models. They are under construction.

It is supposed that change of the prices in time can be described using the system of the equations (mathematical model). For the concrete traded assets historical numbers of the data get out. These numbers are necessary to execute optimization.

The system of the equations includes certain parameters which are necessary for specifying quantitatively for the concrete assets. Functional managements are under construction so that to reduce to a discrepancy minimum between results of calculations and the real data from a historical number. Parameters of system of the equations are determined until values of functional managements won’t come nearer to zero.

Thus, parameters of system of the equations turn out, and it is supposed that with its help it is possible to predict confidently behavior of the prices in time of the assets interesting us. For the reader far from mathematicians, we will result analogy of an optimizing market model. We will imagine that the historical film is shot. The director is functional manager. The command occupied in shootings of a film is a system of the equations. Historical numbers of the data is archival chronology of events. The film acts in film so that its plot as much as possible came nearer to real chronology of events. The director manages shootings so that events in a film is minimum differed from archival chronology of events.

Now pay attention to the most important conclusion which arises. After film shooting any director won’t tell you how in the future will develop the events described in a film. Mathematicians assume that it is possible to make it. However the assumption of mathematicians wrongly: the future isn’t predicted. From here it is possible to draw a conclusion that optimizing market models provide the consumer with the incorrect information.

For those who want to participate in forex trading must start from learning the basics of this market to make sure you do not experience problems with this industry.

There is another option – you can hire professional traders to managed your trading account – read more about forex investment here. Also make sure to search for the knowledge in a good forex book.