Historical Graphs

Historical Graphs

An important stage in profiting from forex trading is running through historical graphs to see if a particular method works. It doesn´t matter whether one has been taught a new method or one has an idea that may be profitable, the first action should always be to run through what has already happened to see if the idea works. It is very tempting to run immediately into trading an idea that has been hyped or heavily advertised. In this game nobody can be trusted and only the graphs can reveal the truth.

Excitement due to a new idea can stimulate a person to trade it immediately. The reality is that there are thousands of ideas that can be investigated and thousands which will not work and so as a consequence it is better to go to the historical graphs and test them first prior to actual trading.

Having said all this, historical graphs are only a stage leading to actual trading and there are limitations to this approach:

1. They do not reveal the emotions that run through the body in real time. For example, on a historical graph, the 15 minute candle is closed, but in real time, it may be fluctuating between two extremes that will lead in the end to the adoption of one of two opposing decisions. Fifteen minutes can seem like a lifetime during the trading process!

2. They do not reveal underlying tensions that are felt in the market in real time. For example, if an important inflation report is about to be published, or if there is indecision about which direction the trading pair should go, it is not clear to see this in the historical graphs. A pure technical analyst may totally disagree with what I have just said and argue that all fundamental data and moments of indecision are written in the graph and this is true. The difference however is that in real time you feel the market tension before it is written into the graph. Real time trading improves gut instincts.

3. It is very easy to ´cheat´ without realising it in analysing historical graphs. For example, you are looking at a graph and you try to predict where it will go. It is very tempting to flick to the future to find out the answer to the problem and many times a person can think that they have created an effective rule for earning pips when in reality the positive conclusion came from looking forward in time. How do I know that this happens? Because I found myself trying to scroll forward on a real time graph and being very frustrated that I couldn´t!

4. There can be unforeseen complications in real time. For example, you run through historical graphs using a stochastic strategy and it appears to work. The idea is that when the two lines cross you get into a trade. The problem can be that in real time it is actually difficult to know when the lines actually cross and a person can get in too early or too late.

5. It is easy to create a new rule on the spur of the moment and then not employ it consistently in following trades. Consequently a person may believe that the method works when it only ‘works’ this time.