Kanzler is correct. Spread is the silent enemy of the retail trader.
Traders moan about slippage, poor fills, re-quotes, etc, but happily accept spreads as a necessary cost of conducting business. Sure, there's nothing overly wrong with that thinking, but ironically, traders invariably forfeit far more money to spreads (and commissions) than they ever do to slippage.
On the "Why do 95% of traders lose?" type threads, the most frequent reasons given are poor methodology, lack of discipline, emotional trading, etc. Yet transaction costs are possibly the biggest single reason that most daytraders lose. If, for example, you're trying to scalp 10 pip moves, a 2 pip spread is a 20% edge against you, before you even start to apply your strategy against the market. Unless you have an extraordinary scalping strategy, you'd get much better odds playing roulette at your local casino.
There are also "why not invert a losing strategy?" threads, and the primary reason why this will not work profitably is....... transaction costs.
Spread reduces the profit on your winning trades, and increases the loss on your losing trades. When you calculate net RR, you must add the spread to the risk AND deduct the spread from your return. It doesn't matter how great your strategy is, or your risk management, or your implementation, the spread will always work against you.
One of the simplest, yet most effective, ways of improving your bottom line, is to find br0kers, and pairs, with the lowest spreads. Or at least be willing to increase your TP on pairs with higher spreads; for example, if you're willing to accept a 2 pip spread when chasing a 50 pip move, then you should be looking to trade 100 pip moves on a pair with a 4 pip spread, to keep the 'house edge' at 4%.
Expressing spread as a % of average daily range is a useful metric. Everything else being equal, trade pairs with the smallest spread/ADR ratio. Both the Signal and DisplayInfo indicators that I wrote display this ratio.
since long ago, i've realised spread is not only a dreadful cost, but also messing myself up twice for each position.
sometimes, i don't think eurusd is 2-pip as everyone knows. when i buy 1 position, i lose 2 pip, when i exit that position, i lose another 2 pip. ---- 4 pips!
that's why for a long time, i had believed that only trading for 100 pip + target is meaningful------ of coz, it is not right, but generally, for easier winnings in FX, daily/weekly trading aiming at 100+ pips is the way.
till today, i'm still not sure if this is a right way for me.
the famous 'favourite' (search for his story in daytrading thread by DNA), when telling his story, mentioned that after he started doing 1/2 trading + 1/2 original work, "i was still not sure."
i am not sure either. but i am not sure for a couple of more things:
1. my trading skill, it is not good enough, that i'm sure, lol.
2. when can i be proficient in trading like walking, eating, and sleeping
3. even if i'm very good, will i continue doing it for many years since now
the doubt NO.3 is really originated from the nature of this business, and also perhaps partially why this is a HARD way.
trading is, to a large extent, same as living in both behavior and mindset.
i have to know what is done wrong, and be aware when it is ME that is making the same mistake ---- people usually don't know, don't even mention criticizing themselves for doing it.
i have to always weight the market(life situation) before acting upon it. sometimes the situation is easy and you just act usual. the other times, complicated/unwarned/tricky situation, you must make plans ---- NO, i don't like making plans for every step i'm taking next ---- but i have to LIKE it, otherwise, i should quit trading!
I have to carry on, and carry on. just like in life, you need to pursue it, constantly, if not faithfully, but keep trying. This business is for people with a brave, sturdy, and paranoid heart. nowadays, i don't believe that ppl who survive and profitable in markets are ones who are not persistent and honest (to his heart).
Its always good for the traders that they try to learn to face the difficulties at the starting stage itself so that they can become good and profitable traders at the later stages.
did you see that move on the rupee,MXN? i caught part of that and it saved me from my troubles.When you are netting 20R+ on mega-trades like these the spread becomes almost irrelevant.I haven't seen trades like these occur on majors several times a year.moves like these are all u need to have a great year.Looking at my stats I see that almost all my big winners were from crosses except for the yen which i rode along with the BOJ policies.
crosses are one of the biggest success secret,looking to pair the strongest and weakest currencies+ carry trades is the best way to ride those mega trends when they occur.
one of the few concepts that gives me the LEAP on my trading skill is something similar to Newton Physics:
a trend will mostly continue unless it really really reverses; a ranging will mostly continue unless the range is really really broken.
i seem the type of trader who must have an overview of the market before entering.
Caught the rupee action as well..you got to admit when the crosses get volatile, things get interesting and with due credit to the rumor mill on fed tapering,
There is also a Right Way and Wrong Way.
Depending on starting capital, all one needs is either 6, 5, 4 or 3 right trades with 1:10 r:r
1 - 10
10 - 100
100 - 1,000
1,000 - 10,000
10,000 - 100,000
100,000 - 1,000,000
Is it a problem if these trades come in 6 years?
Think about it............... and don't look at my trade explorer results.
Luckily you have a demo account.
so many ppl in this forum, even those with 10+v, elaborate how essential the mental/psychological aspect is in trading. it is declared a secret yet sacred self-discovery.
it is not a secret or sacred at all. it is simply stupidity to ascribe the lack of skills to 'heart' problem.
it is just like you doing marathon, bicycle, or driving. it might be too hard for you to do it, and therefore you cry saying it is your mental problem, what a laugh!
a few years ago, when i read some experienced trader making analogy between driving and trading. i said to myself, bullshit. nowadays, i know it is true, though the analogy is not that vividly exact.
i hit the wall driving simply because i'm dumb, not because of my weak heart, or lack of discipline.----nima.
i trade and lose all for same logic.
the reason that the analogy is not convincing on 1st look is that driving is much much easier compared to trading. but there's no fundamental difference between learning to trade and ALL OTHER SKILLs. Just trading is much much more difficult than many skills like singing, dancing, marathon, soccer, basketball.
why more difficult? let's use a soccer player and a trader for an example:
a soccer player needs to do one thing good enough to be capable, and survive the game. if he can shoot very well, he doesn't need to tackle. if he can dribble very well, he doesn't need shoot well. he can find his position on field, and make a living if he can do one thing good enough.
a trader cannot survive with one skill or one piece of knowledge. everytime a trader enters the market, she'll be exposed unknown future conditions that can be in any form----even situation unseen before. a trader needs to know how to deal with ALL conditions. that requires tons of skills, knowledge, and experiences. and these things come a long and hard way.
i'm ashamed that i've just recently realised this, and i believe my realisation is correct, or plz correct me with your thoughts.
Heaven, Chicky! you still think this is a "Right Way"? could you please prove it? I'll so appreciate your god-like findings.
i remeber that i've posted in your thread that your trading doesn't involve "time cost", which ......
i don't understand why it is hard to let profits run. through lots of backtests and forward tests, i know/believe that the target will mostly be reached. and i have confidence in it. and ultimately, obeying the target is indispensable to the edge of the system. why feeling hard to do it? it is mostly because of lack of confidence, not psychology stability.
in fact, i feel that entry, hold, and exit are integral parts of one action, imho. it is hard to separately consider actions towards them.
lack of confidence, yes, usually due to lack of practice/skill.
over the years, i realised many concepts along the way. the findings often confirm how hard this business is.
for example, the generic indicators (those you see in MT4) are useless to newbies.
i do think that some experienced traders with deep understanding of market know how to use them. but for most textbook/babypips/google teachings, the indicators are useless.
let's say i use a stochastic 9,3,3 on daily, and W% 14 on hourly, when both reach oversold, i'll long with tp vs sl as 1:1 (do you think the price would more likely reverse than going on too?); and short vice versa. it is very simple to find that it is almost a break-even system, meaning the price has 50% 50% chance going either up or down even though both daily and hourly shows oversold/bought...... if interested, you try different settings, but i guess that the outcome is similar. the fundamental reason is that, just like our life, a success that is difficult to replicate may be a real success. like iphone in its early years, or US air carriers, these are very difficult to replicate! not stochastic over 85, or MACD above zero, nima......
so what's the moral and merit of findings like above?
the common mechanic systems/EAs you see in FF are 99.9% not working! why? because they are developed using similar infrastructure.
so how to be profitable??? yeah, now i know i should take pains, but the direction is even more important! i have no mentor, and i can only guess and try. i present two things:
1. price levels, or S/R that everyone knows. plan your trades based on the price levels!
2. weights, the position sizing/stacking based on price levels. martingale, average down, pyramid, yes, you can use all of them, but not blindly! put more weights to capture big moves.
for retail traders, mechanic system is so so difficult to develop and apply simply due to limited resources. trying on FF's EAs are good for coding learning, but not for trading.
keep logging new thoughts......
many stupid ideas (seen in FF) that simply wipe out accounts may simply make money in stock and commodity markets! I'm sorry that I've just related and found out this. I am not sure if it is truly so as I have not tested it seriously (no interest, no resource). but this impression seems so evident and easy to verify to some extent by eyeballs.
it's been a while since i played with numbers in excel, but an excellent thread by pipmeup in trading discussion section titled 'expectancy management'involves an interesting experiment, and i did it.
i am amazed by some simple yet unknown (to me) facts and can't help sighing "if i knew it be so difficult 8 yrs ago, i would not step on this path".
1st finding is about "luck":
one same system, 70% win, RR 1:1, out of $1000 capital, bet 10% each time. what happened after 100 trades???
if ur luck is extremely good, you might end up with $150k~200k,
if ur luck stinks, you might reach $4k, $5k ---- lol, you still profitable, since it is a winning system!
trading is just like life, isn't it? someone is born with gold spoon in mouth, while the others fight their whole life for nothing......
2nd thing is RR:
in trading, TIME is an essential (often ignored) element. time is your capital, in some senses, more precious than money as it never comes back.
big RR simply consumes too much time! ---- this is not a conclusion from the experiment mentioned above, but rather, a reflection based on my own experiences. but this reflection, to some extent, fit into a finding from that experiment: large RR system can hardly outperform (actually lag a lot) a RR=1 system, when both share same expectancy (or edge?).
it's been 2 or 3 years i've suffered from watching crazy floating profit evaporated in front of my eyes, as i'm a loyal follower of 'building an equity milliepede' (baem) thread. i believed that large RR brings the true potential to profits----NO, it's NOT!
if you read 'baem' thread, or going to read, i tell you why pipeasy is successful: he can trade at an incredible frequency with high win%. his trading frequency is UNMATCHed! it is his entry, highly frequent, and highly accurate (rarely losing), that makes his success. Among his winners, he chose a few to let it run into big winners. winners are so big that even himself believe he wins due to his large RR. he in fact, failed to provide statistics of his trading. so here is my current view/understanding of his success.
when you or i have that wonderful entry technique as pipeasy does, do whatfeckever you want. otherwise, a reasonable RR (1:1 or so) probably is the way to go and realise! now i believe it is not due to coincidence, but fundamental trading principles, that my manual trading improves with my RR fluctuates around 1 for the past year.
last, i upload my spreadsheet, incase anyone find it entertaining......
Two things that rookies don't understand (or cannot realise).
Yeah, i know i'm a fecking rookie.
1. plan your trade, and trade your plan.
---- do that, and you won't be profitable -- right away. you'll be ultimately, but not immediately. if you don't understand, mediate for a minute. it might take you to do this crap "pyt, typ" thousands of times before you get profitable, then that's it.
being nice, i make an example of my daughter. who can believe that a person will send a spoon of food to its nose? no way! but toddlers do! my 2-yr old, when starting to learn chopsticks, clumsily sent the food to her face. before watching that, i didn't think that needs exercise. she knows every how-to, but she needs to execute it (many times) to master it.
2. no prediction, just follow market, and you'll get it
---- if u do it, u'll get it. many say it is impossible (including me). it is because we do it wrong. the lethal issue when you follow the market is overtrading. but this issue is easy to overcome: don't fecking place more than, say, 2 positions at same level! in other words, you follow market, you keep entering, but spread your positions VERTICALLY as well as horizontally!
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