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.