Does Efficient Market Hypothesis mean that it is impossible to make profits from Forex Trading?
What is an Efficient Market Hypothesis? It is the concept which argues that at any given moment all the available information and the news are priced in. According to this hypothesis, there is never any slack in the market. Furthermore, there is never any room to make a profit.
However, anyone who has actually traded for a living will know that this theory is an absolute nonsense. Even if you just follow my Risk Event Videos every week or my Daily Blog you notice that the circulating news does not affect the market straight away. A very good example of this is the Quantitative Easing done by the Bank of Japan in April 2013. They instigated one of largest Quantitative Easing programs ever. Because of it the USD/JPY pair went from 90 to 120 over the period of 18 months. So if Efficient Market Hypothesis was correct the USD/JPY pair would get to 1.20 the day they announced Quantitative Easing. But, as I said, it wasn’t the case. It took almost two years for this move to play out.
The other example of the case is my Risk Event Videos. Here we always discuss the upcoming figure that we expect to be good. And we actually trade into it. We buy the currency before that figure comes out. Simply, because we know the markets are going to buy it when that particular figure does come out. Once it happens the price obviously moves. Thus, there is plenty of opportunities to make pips. And if you are concerned about Efficient Market Hypothesis – don’t worry. Simply watch the news and watch how the markets play out at least for a few weeks. You will see that Efficient Market Hypothesis is nonsense. Therefore, the news and the information is never perfectly priced in.