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Is Forex Market Random?

September 26, 2016 by

Are Forex charts random? Does trying to predict the market and trade currencies for profit even makes sense? Traders and curious people ask these questions and, I am sure, find a lot of contradicting answers online. The number of traders who claim getting consistent profits from the foreign exchange market is counterbalanced by a number of persons stating that the market cannot be predicted because randomly-generated charts cannot be reliably distinguished from the true ones.

One of the most famous supporting work for the randomness theory is Eugene Fama‘s article Random Walks In Stock Market Prices. Despite it seeming contradiction, the market randomness theory is based on the efficient-market hypothesis. On the opposing side, a book called Non-Random Walk Down Wall Street by Andrew Lo and A. Craig MacKinlay does a great job backing up the case for non-randomness of markets. However, both camps are full of supporting articles, books, documents, and experiments. Nowadays, proponents of both points of view can be found among scholars, traders, analysts, and general public.

I will not be trying to prove one point or another here. I will just leave the following two chart images before the poll.

The first one is the well-know EUR/CHF disaster of January 15, 2015, when the Swiss National Bank decided to abandon its floor rate on the currency pair:

EUR/CHF - Price Action Following SNB Decision in January 2015

The second chart is a randomly generated one:

Randomly Generated Forex Chart

Is Forex market completely random and unpredictable?

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If you want to share a detailed opinion on whether Forex market is random or not, please do so using the commentary form below.

4 Responses to “Is Forex Market Random?”

  1. John

    The first graph is like a quantum effect tunnel, forex is random like a quantum particle at some potetion walls. It’s work like a random wave. One day you win and others lose, other day you lose and others win. The forex bank always win, it is the only way to really win win with forex!

    Reply

    Ray Reply:

    You can analyse the data all you like. Go for the lowest spreads, get the best margins etc. but you will still have problems. The best that the gurus will tell you is that the trend is your friend. But nobody knows if a trend will continue, or even if there is one a lot of the time. It is very hard to make money. 96% of people can not make a profit over 4 quarters. It is totally random. The more you think that you have a great strategy, the more certain you become – The worse you will do. There is such a component of the random in the Forex market that any degree of certainty is dangerous. The only constant is uncertainty.

    Reply

  2. Cheji

    Forex market is random believe it or not and ANY strategy will fail in the long run for certain.

    Reply

    Andriy Moraru Reply:

    And we have to believe it just because you say so?

    Reply

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