Beat the Forex Dealer: An Insider’s Look Into Trading Today’s Foreign Exchange Market by Agustin Silvani

I
THROUGH THE EYES OF A TRADER

1
On Markets
If one believes in a random universe, a strong case can be made for the fact
that any sort of technical analysis and trading tactics are in fact quite
useless. Under this scenario, random and unpredictable price movements
makes research, analysis, and market timing an exercise in futility, and
relegates any kind of strategy (other than buy-and-hold) to a game of
chance, not skill. As Burton Malkiel famously noted, “A blindfolded
monkey throwing darts at the financial pages of a newspaper can select a
portfolio that will do just as well as one carefully selected by the experts”.
This market view is supported by the fact that the vast majority of mutual
funds fail to beat the broader market year after year, and history shows us
that the ten best-performing funds in any one year will drop to the bottom
of the pack in the following two to four years, meaning that a manager’s
outperformance is largely the product of luck, like a gambler’s short-term
winning streak. Simply put, there is no way to consistently beat the market.
Needless to say, this view of things does not sit well with Wall Street,
which preaches that research, analysis, and relying on expertise are the keys
to investing (and their business model!). Assuming that we can draw a
similar parallel to other markets, then why bother trading? Why spend so
much time researching the market and analyzing prices when we could just
as simply close our eyes and buy or sell?
Thankfully for traders, although the random walk theory paints a strong
case against mutual funds, it is not entirely bullet-proof. Investors
consistently fall prey to fear, envy, overconfidence, faddism, and other
recognizably human imperfections that make markets not only inefficient
but predictably inefficient. In the short run, recognizable patterns are indeed
visible in the stock market. Bubbles are created, and then burst. If the DOW
goes up one week, it is more likely to go up the next week. In the long run

Beat the Forex Dealer: An Insider’s Look Into Trading Today’s Foreign Exchange Market by Agustin Silvani