Part 4 of 6 threads
discussing various [color=sea-green]characteristics of the Forex Market[/color] and different approaches to Money Management.
Parts 1,2,3 covers risk:reward ratio used to set S/L-T/P orders. Please read here.
Part 5 covers winning rate - here
Thesaurus gives synonyms for
random - haphazard, accidental, irregular, objectless, unplanned, unexpected.
Well, I believe that forex prices move randomly. Do you ?
If you do not agree you probably mean that forex movements are distributed uniformly bacause there is the same chance to go up or down.
Uniform distribution means that the values of a random variable are uniformly distributed over an interval. Well known examples of descrete uniform distribution are the coin and the dice.
The coin tossing may give two results - head or tail (0 or 1, buy or sell 
. Chances for head or tail are the same and equal 1/2 or 50% (excluding "special" cases of dropping the coin onto the sand).
The dice comes with a value of 1,2,3,4,5 or 6 with same chances, each is equal to 1/6 or 17%. Chances that the dice shows 3 are the same as chances for 6.
However, chances that the dice will come with smth less or equal to 4 are much better than the chances for the "6" (4/6=67% against 1/6=17%).
Say, you play the gaim of throwing dice with the rules: you pay $1 when 6 comes up, you pay nothing for 5 and you receive $1 when the dice come with smth less or equal than 4 (1,2,3,4).
Is that a good game ? Wow, I can play it all my life 
My chances to win are 4 times better than chances to lose !
Ok, what this is all about ?
Well, the life is not so simple on the forex market. The EUR/USD has thousands of possible price values. The price can go up, down or stay flat.
Please try to answer the following questions about forex prices and check yourself.
Say, the price for EUR/USD is 1.1650 now.[list=1][*]What are the chances Euro will go up in the next hour ?[*]What are the chances Euro will be higher tomorrow at the same time after 24 hours of trading ?[*]What are the chances Euro will go up OR down in the next hour?
Tough questions.
Now please try to compare chances of two events in the future.
Which chances are better (or same):[*] A. The Euro will reach 1.1700 (+50 pips) during next 24 hours or
B. The Euro will reach 1.1600 (-50 pips) during next 24 hours[*] A. 1.1700 (+50 pips) or B. 1.1630 (-20 pips) ?[*] A. 1.1700 (+50 pips) or B. 1.1670 (+20 pips) ?
Human nature tends to believe that prices will continue the previous movement. Do you agree ?
Try this:[*] I look at the chart and see that EUR/USD is 1.1660 now (at the moment at writing), so it went up from 1.1650. Can you estimate the chances that Euro will go up again when it reaches 1.1650 next time ? Are they better than 50% ?[/list=1]
Thank you for your time
Answers are available here.
Well, what do you think about forex price movements ?
Are they random ?
Are they uniform ?
Are they predictable with chances better than 50% ?
Please share your thoughts
