Into the Heart of Chaos

Into the Heart of Chaos
How I developed Forex Profit Pro

Like many of the traders I have met or talked with over the years, I was first introduced to commodities trading through a well-known mail-order course. However, after nearly eight months in the markets, I had made only a couple of fairly good trades and a lot of bad ones.

With my losers outnumbering my winners, my overall performance was less than stellar. The problem was that the markets did not always act as they were "supposed" to, and frequently reversed themselves just long enough to force me out before going in the "right" direction.

Sound familiar?

Because I was often frustrated and unsure of when and where to get out or get back in, I went on a quest for the "Holy Grail" of trading systems.

I began my search by reviewing the literature on statistical analysis of the markets. I was not looking so much for what had already been done, as for what had been overlooked. I discovered that most analyses and analysis tools were based on linear mathematics and statistics. I felt that from a statistics standpoint, something was missing, so I decided to do some research into the psychology of trading. That is when I hit upon a significant discovery.

From the literature on the psychology of trading, it was evident that it is not fluctuating interest rates, not droughts or frosts, not government reports, not even supply and demand that makes the markets move. I came to the conclusion that at its most basic level, it is the belief system of each individual trader that ultimately motivates the market.

Each trader, filtering information through the chaos of his or her desires, hopes, fears, wishes, needs, biases, background, experience, and motives, makes decisions to enter or exit, to buy or to sell. Those decisions are transformed into orders, and when those orders reach the trading floor, the ticker ticks and the price moves.

This seemed to me to be an extremely important concept. In fact, several articles referred to Chaos Theory and the application of non-linear dynamics in studying human brain activity and the thought patterns that are part of the decision making process. As I examined Chaos Theory more closely, I found that it deals mainly with complex, turbulent, non-linear systems such as brain activity, traffic patterns, the weather, or the flow of blood through the heart.

It came to me that since the markets are driven by the combined decisions of millions of traders, they also fall into the category of complex, turbulent, non-linear systems. As such, they require a non-linear approach, if they are to be understood.

What this means to traders is that any techniques, tools or systems based solely on linear statistics will produce indifferent results. This is because those models, including ones I had initially developed, were created by tweaking historical data to fit the model. They are grounded in the mistaken assumption that the future will be like the past.

I also found within the literature some books and articles that were not published by chaotists, but rather by traders with expertise in non-linear math and statistical modeling based on Chaos Theory. Two authors in particular were quite influential, Edgar Peters and Bill Williams, although the work of many others was also quite eye opening. By using their research as a starting point, and then building on it over the next twenty-one months, I finally succeeded in developing a system that did not depend on traditional linear statistics, historical data, or "goodness of fit."

I called it The Fractal's Edge, and it is a chaos-based trading system that follows the basic rhythm of the market. (That was our original stocks and futures trading system, before we got into the even more profitable Forex market.)

In the six years since the launch of The Fractal's Edge, my research has taken me into the very heart of Chaos. I have confirmed what most traders feel intuitively: each market has unique characteristics that set it apart from all of the others, and truly effective systems must account for those individual differences.

I also found that the Forex offered many advantages over the Stock and Futures markets. And my trading results, though successful with stocks and futures, were even better in the Forex. One of the reasons for this is that there is a great deal more volume at play in the Forex than in the stocks and futures markets. This leads to more accurate and profitable signals using the sciences I'm employing.

With that in mind, I decided to develop a real-time Forex trading system that would be easy to use and perform better than any other.

The result is The Forex Profit Pro, a flexible, easy and profitable system that allows you to trade your way: intraday trading, swing trading, position trading, economic report trading and even discretionary trading.

Best regards,

Ken Herbert