How My Forecasts Work

Since I've been tossing out forex predictions without much explanation of their parameters, I thought it was about time to clarify exactly what I'm specifying about the markets when I say "forecast" or "prediction".

My system runs off of daily market data for the EUR/USD and GBP/USD (or Cable) pairs. This data includes the opening, high, low, and closing prices for each pair. If I really set my mind to it I'm sure I could come up with systems for other pairs, but these keep me plenty busy for now. (Actually, I once tried to come up with one for the USD/JPY but it really didn't turn out well. At all.)

Of the Euro and the Pound I only really trade the EUR/USD, with the occasional foray into the Cable for kicks. Eventually I may trade both pairs simultaneously, but only after I build up a larger amount of principal. Cautious money management is the name of the game here.

I created this system because I wanted to be able to trade only once a day, using straightforward Yes or No signals that took under 10 minutes to generate. I did this in an effort to preserve my sanity, and my funds, after attempting to trade 5 minute, 30 minute, and hourly charts. I quickly found that these time intervals were causing me to lose sleep, money, and mental stability.

Anyway. The official time that each forecast goes into effect is 4:00 pm US Pacific Time; I live in the San Francisco Bay Area and so that's when my trading day starts (except on weekends, but I'm not likely to be posting many forecasts on weekends). If you want to convert this to your local time, here's a handy conversion tool. Each prediction is made for the coming 24 hours, and will hence be proved true or false at 4:00 PM the next day. The exception is on Fridays, when market makers close for the weekend at 1:00 or 2:00 PM Pacific Time. I know Global Forex Trading wraps up the week at 2:00 PM my time, and Forex Capital Markets closes at 1:00 PM. Other brokers' closing times may vary.

In practice, I generally post the forecast within a couple hours of making it, if I have time (which I didn't yesterday, as you may have noticed). Since there's usually not a huge amount of market activity in those couple hours, the prediction should remain valid -- however, I make no guarantees, and am only posting these signals for informational and entertainment purposes. Trade at your own risk!

So that's how it works. Yes, but how exactly are these signals constructed in the first place, you may wonder. The short answer is through trial, error, more error, then finally, identification of some promising indicators, followed by a process of layering these indicators while excluding counter-indicators (see my Process of Elimination post), and then, at the end of it all, a whole lot of hoping (often accompanied by some cursing).

That's the short answer. The long answer I'll save for another day.