Today, we are seeing the increasing use of neural networks in financial markets to help forecast prices with greater accuracy and the complexity and research is mind boggling. This article will look at the use of neural networks in financial trading and their profit potential.
The Human Brain V Computers
The human brain is one of the most complex objects if not the most complex object known to man. It is not just its superior processing speed and storage space that make it extraordinary, but more importantly, its ability to learn and adapt.
Neural Networks Defined
Computer scientists have tried to write software that allows computers to mimic the learning power of the brain (computers already have superior storage and processing speed) and neural networks aim to help a computer learn and adapt.
A neural network is essentially a system of programs and data structures that approximates the operation of the human brain. A neural network consists of a large number of processors operating in parallel, each with its own sphere of knowledge and access to its own databank.
A neural network is "trained" by being given large amounts of data and a set of rules.
A computer program can then tell the network how to react in response to an external event and initiate reactions based on the knowledge it has access to.
Therefore in forex trading, neural networks can learn how to trade based upon the data fed to them.
Do They Work?
The answer is at present the human brain is and always will be superior, due to the fact it can THINK independently. A computer can never achieve the learning power of the human brain as it can only work with the rules it’s programmed with.
A computer program can trade, but do you need a neural network.
There are computer programs today, that don’t use neural networks, that have rules that make money and neural networks don’t have any advantage at all.
People think that technology can solve everything, but the markets are one area where simple systems can and do work best.
An Investment Fact
The fact is that 50 years ago 95% of forex traders lost and today the same ratio applies.
This is despite all the advances we have had in market research, computers and speed of information delivery. Keeps this point in mind if you want to win at forex trading:
Trading is an odds game and the application of science to predict is doomed to failure.
There will never be a neural network with the power to learn and adapt like the human brain, as it has to be programmed by a human and there are endless variables.
Keep it Simple For Success
If someone tries to sell you a program or service based upon neural networking, ask for their real time track record and see if you get one – chances are you wont.
People are always looking for science to help but in the markets forget neutral networks and play the odds.
Either with your brain or with a currency trading system, that’s simple with just a few rules – that’s all you need, don’t look for more.