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The Forex markets are constantly changing, and to keep up to date with what is going on you also need to know the most up to date financial statistics and information possible. This entails a number of different approaches, both from learning more about the Forex markets, studying up on trading strategies and looking at what historical forex traders have done in similar circumstances.

But also looking at historical forex data and then drawing conclusions from looking at that data about what to do next in order to flourish in the markets and not be sucked under by it.

Take a look at this historical forex data guide for more information.

Trading Forex can be seen strategically and approached systematically through analysing historical forex charts and data.  That is what you will hear over and over again in many trading circles. In principle that’s true.  It certainly makes sense to have a handle on where the foreign exchange market has been in the past if you want to get a good feel for how the market may react to a particular situation in the future. And in fact, that is probably where the key strength lies in analysing historical forex data in that you can assess how a very human and tangible event, like a flood for example, in the past has affected the dollar exchange rate. This knowledge is very useful if you are going to engage in forex trading for yourself,  but there are some drawbacks to number crunching historical forex rates that you should be aware of, and to be honest, I ended up using this forex system instead because it saved so much time than crunching all the numbers myself.

Here Are Three Factors To Consider With Historical Forex Data

1/ Just Because It Happened In The Past Doesn’t Mean It Will Happen In The Future

This is a biggie. Because I cut myself shaving this morning doesn’t mean I will cut myself tomorrow.  Because all that happens is that I would change the variables involved. Maybe use a new razor because the old one was blunt, or make sure the water is a little cooler so I don’t flinch, or have a cup of coffee before I shave so that I am more awake when I do it and hence a bit more careful.

If you apply that same premise to forex trading (which is clearly MUCH more complicated than shaving ) then it quickly becomes evident why over reliance on forex historical forex data might not be such a good plan.  It’s very much like looking at quantum mechanics. In quantum mechanics, the very act of observing something changes how it behaves.  So the fact that trading has happened one way in the past actually taps directly into chaos theory, and tends to indicate there is a good chance the market will do something totally different in the future!

Obviously, this isn’t an exact science is the point I am trying to make. 2 +2 could equal 4. But sometimes it could equal 5, and the forex data on its own is not necessarily going to give you too many clues as to why that is the case.

2/ Psychology Is As important As Facts

The facts are there for all to see. If you contact the relevant exchanges then it is an easy matter to get accurate historical forex data. The problem comes in that open books that are read by everyone cease to have the pull of a new story. In other words, the fact that the data is easily available actually makes it more likely that the human animal, with his almost obsessive lust for what is new, will seek to create new paradigms in the market. That’s not to say that some of it won’t hold true. In fact reaction situations the market will often head down well-trodden paths of behaviour, largely because trading systems kick in and make the decisions. But that is short term. Longer term the systems are still determined by human psychology, and the quest for the new is an imperative in human nature that will always mean that number crunching enormous amounts of historical forex charts will at best be only indicative of future behaviour, and not necessarily causally linked.

3/ Which Numbers Should You Crunch?

This is actually a bigger question then you might realise. The amount of data currently available is enormous. It would literally fill up the Library of Congress if you piled all the different reports that are available from various exchanges and independent bodies. So you may find that you are very much in a chicken and egg situation. You want the data in order to tell you what to trade. But there is so much data that it can be hard to figure out which data to look at in order to figure out to trade. And so on and so forth in a circular motion. If you think about the data abstractly it sounds like it is very achievable to number crunch it. But if you imagine all that data as books filling up all the shelves in the Library of Congress, then imagine yourself walking among them. Where the hell do you start? As I said earlier, there is a lot to consider with this, which is why I use this system instead.

Final Thoughts On Historical Forex Data

With all those drawbacks to number crunching historical forex data yourself you may be better advised to start out slowly and get a leg-up on the market by considering already established trading systems that have already done all the work for you.

One of the challenges with successful forex trading comes with putting historical forex data to its best use. On the one hand it seems self-evident that one great way to approach trading with forex would be to simply dump the entire historical data of forex trades into one big super computer, press a big red and have it dump out a winning trading strategy. Unfortunately, whilst that approach is actually good in theory, in practice that is more difficult then it sounds. The problem being that many systems end up becoming so optimised for the past, that they forget about the future entirely. Now that might work if you have a time machine, or a starring role in “Back To The Future”. But what tends to happen is that the past doesn’t equal the future even after you have poured over historical forex charts for weeks to really try to make it.

Now, I should add that good systems that work do exist. After trying a lot of REALLY bad ones I came across this forex system that really does work. But they are not common, so you need to be careful not to retrofit data if you do design your own.

Thinking About Historical Forex Data…

All that being said, historical forex data is still a useful tool. But it needs to be tempered with common sense. Whilst it may appear that trading somewhat has a life of its own these days with such an amazing variety of trading platforms and trading software. At the end of the day if you look beyond all the gadgetry, this is still a people business. The market may twist and turn for a while off the back of some big traders tricky tactics, but ultimately the fundamentals will kick in.

Is the economy expanding?

What is the state of the political climate?

What is the oil supply situation?

How is the real estate market recovering from the downturn?

So there is a lot to consider with this.

Using Historical Forex Data To Its Best Effect

It is when you start to piece together your own take on these type of questions that it becomes clearer how to use historical forex to its best effect. Namely as a bit like a cog in a mechanical watch. If you have ever visited a jewellers and looked at some of the beautiful transparent back watches from watch makers like Patek Philippe (browsing is free  ) then you will know what I mean.

There appear to be about 200 hundred things going on at the same time. One little wheel moving another wheel, a hinge turning a cog and so on. The watch ticks away seemingly oblivious to the fact that without any one of those small elements the entire watch would stop ticking. In a ways it’s a minor miracle that it works at all. But that miracle has been earned by literally hundreds of years of testing, honing and fine tuning by watchmakers everywhere. The same is true when we look at historical forex data. If you think of it like a cog, then you realise that it is only one part of the overall trading picture, and that there is a lot more to having a successful forex system then just the data.

This fact becomes clearer when you look at the mountain of historical data that it is now possible to get. You could honestly spend hundreds of hours number crunching it all, and still not be any closer to getting to the heart of what makes a consistently winning trading strategy. Because historical forex rates are not necessarily a crystal ball for the future. It needs to be placed in a whole context of the market, the psychology of traders and the madness of crowds. And even then do you really have the time to do all that work? If you do then great, but personally I prefer a more automated approach.

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