In 2004, former Federal Reserve Chairman Alan Greenspan made the following statement about currency trading in a speech before the Economic Club of New York:
“My experience is that exchange markets have become so efficient that virtually all relevant information is embedded almost instantaneously in exchange rates to the point that anticipating movements in major currencies is rarely possible.
”…Despite extensive efforts on the part of analysts, to my knowledge, no model projecting directional movements in exchange rates is significantly superior to tossing a coin. I am aware that of the thousands who try, some are quite successful. So are winners of coin-tossing contests.
"The seeming ability of a number of banking organizations to make consistent profits from foreign exchange trading likely derives not from their insight into future rate changes but from market making.”
Put more simply, successful forex traders are just really, really lucky, according to the Fed's ex-Chairman. I think that thousands of currency speculators around the world, both private and professional ones, would disagree with this statement.
The ex-Chairman didn’t specify what models the Fed tested before deciding that “anticipating movements in major currencies is rarely possible.” But they must have overlooked Elliott wave analysis. Here at EWI, we've been using it to forecast forex markets since the early 1990s – and our analysts aren’t just “tossing a coin.” If you read this column regularly, you’ve seen dozens of examples of successful forecasts we’ve presented here.
No, Elliott wave won't work all the time; what does? But any experienced forex speculator will tell you that you shouldn't rely that much on a forecast, anyway. A good forecast is at best half the battle. Jack D. Schwager, in his excellent "Market Wizards," talks to one successful trader who claims he doesn't use any forecasting method, period. None; all he does is open trades. If the price goes in his direction, he stays with it. If a trade goes in the red, he cuts his losses without hesitation. Over the long run, he's in the black!