Scientific method It is a systematic and logical approach to acquiring knowledge and Solution. It is based on empirical observation, formulation of hypotheses, implementation of experiments and obtaining results.
This is applicable also to the foreign exchange market or currency trading. Where any investor regularly uses trading applications that offer graphics and analysis that enable the application of the scientific method.
Scientific method. basics
Once the scientist has collected enough data, proceed to the formulation of theories. Humans are curious beings, so we often try to understand what is happening around us. We try to explain our observations by making assumptions or hypotheses.
But of course a hypothesis means nothing until it is tested. If: empirical evidence support our hypotheses, we can say that they become theories that are used to generate future observations.
Always open to new observations, scientists recognize that their theories are not absolute truths. For them to have open mind it allows them to track new evidence that may challenge existing theories.
Such open mindedness can be an antidote to overconfidence and investor operating surplus because it allows us to understand that not always being right is not a problem.
To apply the scientific method in Forex, we must follow Next steps:
1. Observing the markets and looking for patterns
we begin Watch the markets and look for patterns which allow us to understand the technical and fundamental factors that drive currency markets. Some factors that can affect the currency market are economic events such as interest rate increases or the release of consumer price index (CPI) data.
By recording these phenomena in the database, we will be able to analyze careful observations and recurring patterns which we can use in our Forex trading operations.
2. Use these observations to generate hypotheses
After observing the markets and looking for patterns is important formulate hypotheses explain currency price behavior in the Forex market.
If you noticed that investors react in a certain way When a central bank announces monetary stimulus, you need to consider how it affects the price of currencies and which forex trading strategies can allow you to benefit from the move. It is important to note that when observing the markets and looking for patterns, one must formulate hypotheses to explain the price behavior of currencies in the Forex market.
At this stage, you should continue to record your observations in a trade journal to make sure your hypothesis is ready for testing.
3. Test hypotheses using patterns
In the third stage, conducting experimentswith rigorous tests that will evaluate the formulated hypothesis based on the patterns found.
Based on previous observations, we should have collected enough data to support a particular pattern. Now we just have to put these theories to the test, carrying out actions if possible. For example, you might look for a potential trade before a monetary policy announcement.
After trading based on these patterns, move on record new observations. This way, you will be able to assess whether any kind of changes need to be made to the initial hypotheses.
4. Make changes to the assumptions based on the results
It markets change, and it is possible that the hypotheses are not absolute truths. Forex trading is a very dynamic environment and sentiment can change at any time. Therefore, we must always be ready to make new adjustments. Even consider the brand new models on the market.
Good Forex Trader must be constantly open to new data. Making business plans based on our own observations and hypotheses can give us confidence in taking these actions. And this activity can help us in this matter Risk managementknowing when to take too many risks or when to play it safe.
The scientific method in Forex is a continuous and dynamic process which allows investors to develop their understanding of the market and improve and correct their trades as new data and results become available.
It’s important to keep a scientist’s mindset when trading. Thus, we can treat each action as a source of new information that can improve or refute previous hypotheses.