I have also asked myself if this people drive prices in a mechanical way. Is it predictable ? One of the most important questions for retail traders. Can we predict the direction of the market ? Or more specifically, can we consistently predict the direction of the market ? The answer – I think – is a shade of yes.
Even though we all have different opinions on the technicals and fundamentals of currency pairs, we all know what we all expect. I mean, for example in the case of a non farm payrolls release, we all think it will be say 100k, then it is 70k, there will unmistakably be a hike in the EUR/USD pair. It is all not because 70k is “good” or “bad” for the economy – although this may be aligned in some cases – it is because the market goes either with or against main trader expectations. This drives the market and people react predictably to this news events.
In the case of more technical situations I think the same may apply. People are psychologically predisposed to certain patterns on charts. This makes their appearance constant. People are used to feeling certain emotions once they see certain changes in price on a currency, then they react the same way they have always done. They will always see trends, retracements, breakout patterns and similar graphical figures.
Although I may not demonstrate conclusively that prices are predictable by means of repeating market behavior I may speculate that the fact that the same people are trading the same currencies on the same charts creates some sort of very complex pattern inside their conduct. People who grasp this pattern are successful retail traders. People who don’t, well, they are the other 90% if you know what I mean.
My analysis so far, predicts that there may be an expert advisor that works on all market conditions. This is because an expert may – unless psychological factors in trading change substantially because of an event – trade based on the “pattern” given by currencies through human behavior.
And even though I have no way to know the nature of this pattern or implement it mechanically I know it is there, hidden amongst the price. Waiting to be discovered. Not all experts are doomed to failure, some may get the key to our psychology .