By Vadim Pokhlebkin=======================
Forex may be the world’s largest and most liquid market, but the success rate among currency traders is the same as of all other market speculators – namely, the absolute majority of traders end up losing money.
To wit, the Financial Times reported last year that a small forex hedge fund was liquidated “due to disappointing performance.” It wouldn't be the first (or last) one, except for one detail: The fund was run by “an academic and currency guru well known in the industry as chairman of financial advisory firms, professor of commerce at Gresham College, and previously global head of research for State Street.”
That failed operation was one of many “momentum-driven” currency hedge funds that struggled over the past couple of years. BNP Paribas’ data showed that, “the average currency hedge fund lost 1.3% in 2004 and 1.7% in the first half of 2005.“
As the head of the failed fund put it, “The absence of trends had made things hard. The absence of logical trends makes it even harder still.”
Now we’re on to something. Just like the ill-fated Long Term Capital Management hedge fund that nearly collapsed the world’s financial system in 1998, many of today’s fund managers continue expecting the markets to behave logically. But markets rarely do, and forex markets are no exception.
As Elliotticians, we believe the markets are driven not by logic, but by fear and greed – that is, human psychology with all its pitfalls and illogical extremes. And Elliott wave analysis is best method we know that helps predict how and when collective psychology may go through another shift – logical or not. It works more often than not; take a look at this forecast for EURUSD we made three weeks ago, for example:
Posted On: Wed, 6 Dec 2006 02:28:00 GMTThe year-long rally from 1.1641 is nearing an end, but could reach 1.3310, where wave five [of the larger wave 1] will be 61.8% of the net distance traveled in waves one through three, before it is complete
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