Trading Tips

Is forex more predictable than other markets?

A blog poster recently suggested that forex is the most predictable market. I have a few problems with this assertion.


In a recent post at Zero Hedge, the following assertion was made:

“But the currency markets are easier to trade from a predictability standpoint compared to many other markets once one learns the relationships.”

The whole piece is essentially one long sales pitch in favor of trading forex over other markets, so it is perhaps no surprise to see a comment of this sort. I’m not here to agree or disagree with that general sentiment. The bottom line is that each trader should pick the market or markets which best suit them and their particular situation.

What I will challenge, however, is the above quote.

I don’t know if anyone has done any tests of market predictability, but if I were to hazard a guess as to which one tops the list I’d have to say stocks. Just look at any major index and the trend it’s had going back multiple decades. Just to be clear, I’m not talking individual stocks here, but rather the market as a whole.

Now, one might say something like, “But who trades in that kind of time frame?”

It’s true. Thinking in terms of decades is the realm of the investors, not traders. That brings me to the main point I want to make with respect to predictability.

The author of the statement above makes a valid point about central banks, etc. signaling their intentions. What they fails to consider, however, is the time frame variation involved.

The vast majority of retail (individual) forex traders operate in the hours to days range. They are day or swing traders, for the most part. The central bank signaling is something which works over significantly longer periods.

While it may be true that the BOJ wanting the JPY to be weaker results in a general down trend in the yen exchange rates, that path is anything but straight and smooth when considering normal trader time frames. Along the way toward yen devaluation there are any number of market influences at work in the shorter time scales.

To my mind, in the shorter term where traders tend to operate, no market really has a long-term predictability advantage.

By John

Author of The Essentials of Trading

1 reply on “Is forex more predictable than other markets?”

According to me I don’t think we can always win with prediction! Trading requires more attention then others. Its has ups and downs we can not miss that.

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