Characteristics of the Forex Market. By Dr. Ned Gandevani
The Winning Edge Forex System is based on my proprietary market model which constructs on two pillars; Chaos Theory and Behavioral Finance. Let us go over each pillar and components briefly so you could appreciate the amazing power of the systems accuracy and high winning probability.
Chaos Theory
This theory which covers non-linear dynamic systems behavior, asserts that the FX market behaves within specific boundaries called Strange Attractors. Strange Attractors act as gravitational orbits. Market participants, due to their hopes and fear factors create an Expansion and Contraction phenomenon. Since the FX market is global, the price level representing Strange Attractors are not fixed but vary in a dynamic matter. Winning Edge students have learned that the strange attractors in the S&P market, as an example, is rather fixed since the market’s behavior is based on dominant US market participants as the primary market. This phenomenon is seen in the market in a dynamic range bound pattern. The Winning Edge Forex proprietary indicators, paint bars indicators, identify these dynamic levels.
Behavioral Finance
The other pillar for the market model utilized in the developing of the Winning Edge Forex System is behavioral finance. This financial perspective that asserts behind any market move and price fluctuations provides the frame work to analyze the threshold of pain and pleasure. The market participants’ psychology follows the universal principal of expansion and contraction which exemplifies hope and fear. Conversely, we see that any of the Forex market moves are in a step down or step up format. Generally, when the market moves up, it continues its upward move until it reaches the inherent boundary of the market known as our strange attractors. Once it reaches these levels, it will pause to form a range bound move, ultimately continuing either in its previous upward move, or revering the direction of the trend.
Trend in Forex Market
In general, the currency market is more trending rather than range bound. This is due to the fact that it is influenced heavily by fundamental factors which seem to have a more lasting influence. As a result, The Winning Edge Forex System is based on technical analysis which enables us to utilize trending behavior of the market for maximizing the system’s profit. Although 95% of the volume of the FX trading is speculation, the significant portion of trading is directed by major international banks and institutions which are usually influenced by fundamental and macro economic factors rather than micro economic and trading developments.
Forex Market Profile
Forex markets are comprised of “major” currency pairs and other less liquid currency pairs known as “exotic” pairs. It’s imperative to recognize that currency pairs exhibit rather two distinct patterns. One set is generally more trending rather than range bound, and others are range bound and therefore less trending. In other words, a Forex trader should not look for a one-size fit all approach to trading the market. The Winning Edge Forex System recognizes this issue that some of the currency pairs exhibit discrete behaviors. To be a successful Forex trader, you need to understand the underlying characteristics of each Forex market. For instance, EUR/USD which is among the most active currency pairs constitutes about 1/3 of the Forex trading according to the most recent survey by Bank for International Settlements (BIS) of currency markets. Furthermore, EUR/USD is influenced by other Euro-crosses such as EUR/GBP, EUR/CHF, and EUR/JPY. This means that if the dollar is weak, you should see an increase in EUR/USD. However, this increase would show an erratic and relatively volatile move. This is due to the fact that other currency pairs like USD/CHF would appreciate which in turn pushes down and reduces EUR/CHF. Conversely, this chain reaction creates a counter moves for the EUR/USD. This is while originally EUR/USD was in its upward move. As a result, EUR/USD exhibits a “backing and filing” behavior in which it tests important support and resistance levels. The Winning Edge Forex System shows you how to take the most advantage of these types of behavior for maximum profits.
On the other hand, a currency pair like USD/JPY exhibits different price behavior. As the second most actively traded currency, this currency pair counts for about 17% of daily global volume according to the BIS 2004 survey. The Japanese yen represents mainly Asian macroeconomic conditions. Its price movement is pretty much keen to macro economic and fundamental variables of the region. Although China could easily compete with Japan, the yen still remains the key trading currency of that region. This means that the USD/JPY tends to be quite volatile. Historically, USD/JPY depicts more a trending pattern on longer time frames (e.g. daily, weekly) rather than on shorter chart formations of intraday moves. The sustained trending move in USD/JPY is mainly due to its market participants’ dynamics and herd mentality. Japanese investors seem to act in groups and therefore create cluster of support and resistance.
Overall, you should note that Forex exhibits similar chart pattern and behaviors like other financial markets. I discuss more about these patterns in details in Part III.
Major currency pairs
Trading foreign exchange is simultaneously buying one currency and selling another one. Therefore, you always deal with a pair of currencies. There are six major currency pairs which are called “major markets.” They are:
EUR/USD – Euro dollar and US dollar,
USD/JPY – US dollar and Japanese Yen,
USD/CHF – US dollar and Swiss Frank,
GBP/USD – British Pound and US Dollar,
USD/CAD – US Dollar and Canadian Dollar.
