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FXTitan Feb 15, 2008 11:21am | Post# 1

The reason why 95% of new traders consistantly lose money
 
Hi

I have been trading forex fulltime on and off for more than 7 years. I have bought and completed several forex courses, read books, did online research on forums such as this one and even tried out EA robots. The only consistent thing that kept on happening was that I was bleeding money. Sure, I would have one or two profitable months, but I mostly lost money. I have wiped out several trading accounts causing myself terrible heartache during this time.

I would bet that every trader reading this post can and is identifying with me. Most of us reading these forex forums are consistent losers in forex and we wouldn't be here if we weren't looking for a better way to trade...

Have you ever wondered why 95% of traders lose consistently? What is the most common thing that most traders consistently do? What is the most urgent mantra that is drilled into our brains while learning to trade? Can anyone guess?

It is using stops! CUT YOUR LOSSES AND LET YOUR PROFITS RIDE!

95% of all traders consistently lose money because they use stops. Big stops, small stops, trailing stops, you name it. Who of us can truly know which way the market will go? Even by using every indicator, being a technical or fundamental fundie, no one can predict market movement.

Who of us thought that the usd would fall 200p against the gbp at the Feb 2008 nfp report. The worst report in 4 years produced exactly the opposite result than we expected! How many fib bounces did exactly work out as you hoped? How many times did the market take out your stops when you least expected it and turn around to go in the original direction you planned?

This is my theory. Traders that lose consistently, use stops. Forex trading is a guessing/ gambling game. The market makers indirectly participate in the forex market by finding traders dumb enough to actually trade and by trading I mean losing their money to the brokers' account. The brokers make money in forex not by trading themselves, but by having noobies trade for them and losing.

The traders who have become successful and that have stuck around long enough knows that no strategy using stops, consistently works and make money. So what have they done? These traders had to start thinking out of the box. Only by turning everything they know onto its head were they able to change their results.

Since I had this 'awakening' I have not lost a single trade. I have 100% consistent winning track record! No Bull! {Don't worry, I am not selling anything...}

Ok, so how does it work? Lets say instead of using stops to book your losses, you use stops to book your profits... Huh?

It is very simple... As has been said by another famous trader/ mentor, CUT YOUR PROFITS AND LET YOUR LOSSES RUN! If your stops are going to be hit anyway, why don't you allow them to make you money instead of losing you money?

This is exactly the opposite of the mantra every broker/ market maker drills into you. They make you believe that you will be safe if you cut your losses short and use stops to protect yourself. They make you believe that with some cool system you will consistently win more trades than you lose or win more money than you would lose by having the right risk/ reward ratio. These guys fully know that you will lose all your money eventually just like the other 95% of traders out there. You will be just another usual statistic if you trade like everyone else trades.

Now this is where gearing and money management really come in. If you use low gearing {1% of your account per trade} you can let the market swing very wide and very far against your position. If you now use a stop to take profits, it will eventually be triggered just like your stop for loss would have eventually been triggered.

Now look for possible turning points. I am sure you can find an indicator/ price pattern that does that. Only work on longer time frames, 4hr minimum, daily is good. Hedge your position, go long/ short at the same price with the same profit target both ways. You can also make your profit target bigger in the direction of the larger trend. Now your stops will definitely be hit no matter which way the market swings.

But, you might ask, what about open positions that really run away against you? No problem. As your account balance grows, you will still use 1:1 gearing. When your account balance keep growing by booking profits, the percentage drawdown of previous open positions with smaller lot sizes will shrink {in relation to total account size} because the current lot size you use now will grow too and so determine your bigger profits as well.

By using low gearing you consistantly book, say 1-5% profit on every trade. Your equity balance will fluctuate and your free margin balance will also fluctuate but at a relatively constant percentage of your total account balance. If you use larger gearing like say 5:1 and 10:1, your account might be wiped out because your margin will not be able to carry it if you have multiple positions open.

Now you have to think what is the reason for you trading? Is this a longer term investment strategy or are you suicidal? {I recommend you keep your day job, for now} By suicidal I mean, trying to scalp or using any other short term strategy that doesn't work in the long run and under various market conditions. Using longer time frames for this investment strategy is definitely better! It is a fact that when you close your account, using my strategy, in the end, that the negative open positions will then be closed as well and you will then book your first real losses.

This is not a big deal if your available equity has grown much larger than your opening balance when you close your account. I, for example, am currently growing my account by a minimum of 10% a week and this current week on the gbp/usd is up 23% so far. The power of accumulated growth is truly amazing! I have fine tuned this strategy to produce better results and started using it on a new account and I have so far doubled this account since 7 Jan 2008 {15 Feb today}.

I am not writing this to show off how brilliant I am, but to challenge the broker induced/ losing trader mentality that you have been taught that prevents you from becoming successful in forex.

If you can start with $1000 and grow it consistently over time, you will be able to show a spectacular return on your investment when you close your account even after taking the loss in the end from the accumulated losing positions. If you manage to make 10% accumulated growth per week on your capital over a year, your available equity in the end will be many times larger than your opening account balance. Work it out on paper and you will prove it to yourself.

The power of hedging is great. If, however, you only trade in one direction, {say the direction of the weekly trend is up} and you keep buying the dips/ possible turning points on a daily chart in the weekly direction and the market for some reason keeps going against you and you find yourself 1000p down, then you run the risk of wiping out your account because all your open positions will be negative and will grow until your margin collapses. By hedging every new position in this scenario, you keep booking profits on the way down and you can just wait for the market to turn around to go back up again and resume the weekly bull trend.

Now I am not trying to sell you a system and I won't give you my system either. I have suffered too much to just give it away. This is my intellectual capital and my trading edge. I have paid my dues to learn this game the hard way. I am sure you guys understand that. I do not care to prove myself to the skeptics among you so I will not post any of my results. You have to decide if you want to take me at my word or not. I merely want to make you consider what I wrote and to challenge you to start thinking out of the box. If you start working on it, you will find your own market beating strategy and have plenty of free time to enjoy your profits.

I have now become one of the 5% of traders who consistently win, without using stoplosses, and make good money.

Good luck

Pardy Feb 15, 2008 11:32am | Post# 2

Thought provoking
 
thanks for your strategy - makes you think!

Pardy

fsiltd Feb 15, 2008 11:34am | Post# 3

I've edited my response!!

In my rush out the door, I've actually managed to reply to the wrong post, in the wrong forum!!

Dumbass that I am.

Ignore me.

fsiltd Feb 15, 2008 11:44am | Post# 4

I will just say quickly though that you are a bit contradictory.

Using stops to book profit is still using stops.

And advocating not using stops is crazy.
And that traders consistently loosing use stops is rubbish.

And now I really have to go...

dedhed Feb 15, 2008 11:46am | Post# 5

Definite food for thought here, but I still can't help thinking you are going to have to keep your lot sizes very small in order to withstand the drawdowns you are inevitably going to have. For myself, hedging is useless, as my style of trading involves only trading with the dominant trend. By keeping lot size small, I don't have to hedge, and can still withstand the drawdowns more comfortably. That being said, I only use stops if I am going to be gone from the computer for a while, this includes trailing stops as well- I have found that as my skills increase with time and practice, my TP orders generally give me a better ROI.

blueruby Feb 15, 2008 11:56am | Post# 6

I read BWILC. Tried "letting my losers run" and, guess what?

One of them ran, and ran, and ran some more.

I soon decided that stops were for me, and bird watching wasn't.

FXTitan Feb 15, 2008 1:40pm | Post# 7

ha ha ha, that's a good one blue ruby!

cryten Feb 15, 2008 1:50pm | Post# 8

Wow so many reasons in these forums as to why 95% don't make it, which one to choose

forexmoments Feb 15, 2008 6:48pm | Post# 9

Wow so many reasons in these forums as to why 95% don't make it, which one to choose
That's what I was thinking. Recently there seems to be a massive upsurge in the 95% vs 5% type of threads.

Maybe we should start a poll on which thread has the best reason? LOL!!!

Bemac Feb 15, 2008 8:00pm | Post# 10

Because 95% {or whatever it is now} THINK, This Is EASY & They Are WRONG.

Best Wishes
The Scot.

PipStar Feb 15, 2008 10:01pm | Post# 11

This is my intellectual capital and my trading edge.
First of all, FX Titan, great post.
If you look at my signature below, I think that you will very much relate to that. The only way to win in the forex is to find an edge. I did and I'm glad you have.
I have paid my dues to learn this game the hard way.
Yes, I have too. And I have been consistently profitable for the last 3 years.
I have now become one of the 5% of traders who consistently win, without using stoplosses, and make good money.
Depending on your strategy, you dont necessarily need to use stop losses.
Stop loss is bread and butter for brokers. Everyone has to make a living.
The conventional way to trade forex is a losing strategy proven by the 90-95% of traders losing. Those who win dont follow the same strategies as the herd, that's for sure.

traderjon Feb 15, 2008 11:45pm | Post# 12

can you please help me understand your hedging system.. im really serious in learning and would like more insight. you do not need to reveal your edge. im trying to understand how can suggest system turn profit. can you give some examples so i can learn?

sincerely,
Jonathon

Babyboy Feb 16, 2008 1:27am | Post# 13

The truth is our mentality ...
 
Nothing much to say, as I'm a newbie ... still a lot to learn ... But one thing I'd problem practising stop loss. Why are we setting stop lose ?? Cause we are afraid to lose more that what we wanted. When the trend goes against us ... we were afraid, scare & etc. This is one of our mentallity emotion.

There more we set for stop lose, the more we lose. The lesser stop lose would mean we lost lesser. So what are you decision .... ???
If you ask me... If you cant handle stop loss for high volatile pairs, why not without stop lose trading low volatile pairs ??? That's what I'm doing...
If I cant win 1000 pips a week with so much mentallity effect, I would rather get 100-200pips a week without so much problem ... carry trades, paying premium ... or whatever you call it or name it ... I would happily pay them for small charges to achieve something that I want ....

At least, I'm having a good night sleep everynite ....

FXTitan Feb 16, 2008 4:11am | Post# 14

To Traderjon

Lets say you identified an opportunity to go long at a potential turning point. You place your long trade with a stop below the last low and your profit target is somewhere above the last high. Ok, now the market moves against your position and nicks your stop for a loss, even though the main trend is up. I have found that often for example the market would bounce on a 61.8 fib and I would enter for long, only to turn around and bounce at 78.6 or take out the low and then turn around in the direction of the original trend. Because you can't accurately predict what the market will do, you lose if you just bet one way.

Now, to hedge your position, you can't lose on your trade. See it as traders' insurance. You hedge yourself against losses. Before brokers started offering hedging on their accounts, traders would use 2 different accounts to hedge their trades with.

Ok, lets say your account balance is $1000. 1%, in other words, using 1:1 gearing, is $10. If you determine that a 100p move equals 1%, then you put up a trade using 0.01 lots or 1 microlot. You want to book 2% profit, so your profit target using a stop order is 200p {a stop loss and a stop order is not the same thing}. If the market moves 1000p against you, it equals $100, which is 10% of your account. So by keeping gearing low, you can now {with no stress and fear} wait for the market to swing until your profit targets get hit and so you keep booking profits and growing your account by 2% every time.

You might think 2% profit is nothing, but remember your longer term goal. You are an investor and you are comparing this investment to other conventional investments {I have booked 1100p on gbp/usd this week alone}. So, you are comparing return on investments. That is the goal you must never lose sight of. A 10% compounded growth per week is excellent. Most investors would becrap themselves to find such an investment opportunity.

By compounding I mean this: If you have won 5 trades of 2%/ $20, you would roughly be $100/ 10% positive. Now 1% on your next trade is $11 or 0.011 lots. So as your account grows, so does the size of the lots and profits that you earn. Now, it is seldom that the market just moves straight up or down. The market fluctuates and will often return to older prices over time.

What if, you went long with 1 lot with a profit target of 2% {e.g 1% of your account equals 100p, so with 1:1 gearing the market moves 200p to ensure your 2% profit target} and hedged your position with 1% countertrend? Now if the market drops below the low, which normally would mean losing money, now if it drops 100p against your entry, you book 1% profit. Does that make sense?

So, hedged trades that run into negative, will most likely be closed for profit when the market turns or have deep retracements. You have to also understand that by using low gearing, your margin for error is severely increased {So exact entries and exists and support/ resistance become less important. You now do not have to be very precise with your entries}, but that you will after one year have open trades in the negative when you close your account.

As I stated earlier, as long as your available equity is higher than your initial account balance, you have growth. By having compounded growth over time, you will rapidly accelerate your investment and you will end with a fantastic return on your investment.

Now you can go and invent your own edge using this concept. By tweaking the optimal % profit- and hedged targets, I have grown my account by 100% in one month with no losses.

FXTitan Feb 16, 2008 4:40am | Post# 15

I would like to add something.

Normally traders would use stops for loss and stops for profit {profit limit orders}. Now you have 2 types of orders in the market and you are hoping and praying that the one stop order gets hit before the other one, regardless of risk/ reward ratio. Most traders lose because the one order gets hit more often than the other one because they either got the direction wrong or the market does something unpredictable.

If you are using orders that loses you money, it will just be a matter of time before these get hit. The market is a volatile, random living thing. It does what it wants to. Ever wondered why trending systems lose money when the market stays sideways for long? It's simple, because the stops get hit every time.

zu si fu Feb 16, 2008 7:50am | Post# 16

Interesting
 
To Traderjon

Lets say you identified an opportunity to go long at a potential turning point. You place your long trade with a stop below the last low and your profit target is somewhere above the last high. Ok, now the market moves against your position and nicks your stop for a loss, even though the main trend is up. I have found that often for example the market would bounce on a 61.8 fib and I would enter for long, only to turn around and bounce at 78.6 or take out the low and then turn around in the direction of the original trend. Because you can't accurately predict what the market will do, you lose if you just bet one way.

Now, to hedge your position, you can't lose on your trade. See it as traders' insurance. You hedge yourself against losses. Before brokers started offering hedging on their accounts, traders would use 2 different accounts to hedge their trades with.

Ok, lets say your account balance is $1000. 1%, in other words, using 1:1 gearing, is $10. If you determine that a 100p move equals 1%, then you put up a trade using 0.01 lots or 1 microlot. You want to book 2% profit, so your profit target using a stop order is 200p {a stop loss and a stop order is not the same thing}. If the market moves 1000p against you, it equals $100, which is 10% of your account. So by keeping gearing low, you can now {with no stress and fear} wait for the market to swing until your profit targets get hit and so you keep booking profits and growing your account by 2% every time.

You might think 2% profit is nothing, but remember your longer term goal. You are an investor and you are comparing this investment to other conventional investments {I have booked 1100p on gbp/usd this week alone}. So, you are comparing return on investments. That is the goal you must never lose sight of. A 10% compounded growth per week is excellent. Most investors would becrap themselves to find such an investment opportunity.

By compounding I mean this: If you have won 5 trades of 2%/ $20, you would roughly be $100/ 10% positive. Now 1% on your next trade is $11 or 0.011 lots. So as your account grows, so does the size of the lots and profits that you earn. Now, it is seldom that the market just moves straight up or down. The market fluctuates and will often return to older prices over time.

What if, you went long with 1 lot with a profit target of 2% {e.g 1% of your account equals 100p, so with 1:1 gearing the market moves 200p to ensure your 2% profit target} and hedged your position with 1% countertrend? Now if the market drops below the low, which normally would mean losing money, now if it drops 100p against your entry, you book 1% profit. Does that make sense?

So, hedged trades that run into negative, will most likely be closed for profit when the market turns or have deep retracements. You have to also understand that by using low gearing, your margin for error is severely increased {So exact entries and exists and support/ resistance become less important. You now do not have to be very precise with your entries}, but that you will after one year have open trades in the negative when you close your account.

As I stated earlier, as long as your available equity is higher than your initial account balance, you have growth. By having compounded growth over time, you will rapidly accelerate your investment and you will end with a fantastic return on your investment.

Now you can go and invent your own edge using this concept. By tweaking the optimal % profit- and hedged targets, I have grown my account by 100% in one month with no losses.
Thanks for sharing.i am following your thread.

Zu

hanover Feb 16, 2008 4:46pm | Post# 17

FXTitan,

I don’t understand the benefit of hedging, along the lines of the reasons discussed here: http://www.forexfactory.com/showthread.php?t=68598
Having a long and a short trade open simultaneously on the same pair yields a zero result, except that we have to pay the spread. To win using this – or indeed any – approach, we need to be net long when price is rising, and net short when price is falling, often enough on balance to overcome costs.

Of course if you don’t set stops, or more precisely never exit until a trade is in profit, you will never have a losing trade. But while the market is moving against you, your account equity is still falling, whether the loss is realized or not. If price movement is as random as you say, then a long trend against you is quite possible, so you could occasionally experience unrealized drawdowns that take a long time to return to breakeven. I’m very pleased to hear that this hasn’t occurred so far.

Re MM, by reducing position sizes you are curtailing both return and risk in like proportion. So if you do experience a drawdown, it will take you longer to return to parity.

Here’s something to consider. Let’s assume, for example, that we believe price has a "higher than normal" probability of reversing at both the 50 and 61.8 Fibo retracements. Trader "A" enters at the 50 Fibo, and keeps his position open until price moves against him to the 61.8, where price does eventually reverse. So he has lost whatever number of pips existed between the 50 and 61.8, prior to any profit caused by the reversal. Trader "B" also enters at the 50, but when price moves against him exits quickly, and then re-enters at the 61.8. Thus he pays the spread cost twice, but avoids the loss in between the Fib levels. Trader "C" enters at the 50, an when the price moves against him, hedges by opening a second position (in the opposite direction), which he closes when price reaches the 61.8, leaving his original position open. The net result is that all three traders profit from the reversal from the 61.8 onward, but "A" fares worse overall than "B" and "C", because he was exposed while price was moving against him. "B" and "C" will both end with the same result, because they were net "zero" while price was moving unfavorably ("C" was "hedged" while "B" was out of the market altogether).

My point is that, in this case, the use of the stoploss to exit is justified (at least so long as the difference between the 50 and 61.8 was significantly greater than the spread, which "A" avoided paying a second time). But all of this assumes that price does have a high probability of reversing at certain points. If not the case (i.e. it’s too random), then any benefit is lost.

In summary, to win at trading, however we open/close our positions, we need to be net long when price is rising, and net short when price is falling, often enough on balance to overcome costs. Whether profit is realized or unrealized is irrelevant: actual overall profit/loss is the account equity, at any point. If one looks deeply enough, the outcomes of individual trades are actually meaningless.

Anyway, congratulations on your performance so far, and I wish you much continued success.

Best wishes,
David

BurgerKing Feb 16, 2008 5:01pm | Post# 18

Because Brokers cheat!
 
One of the reasons why traders lose money is because brokers cheat the traders. I just come across this piece of document that clearly shows how brokers cheat the game:

http://www.forexfactory.com/showpost...&postcount=194

BAD PLATFORM FOR BAD TRADERS
No wonder why MT4 platform is very popular amongst brokers, because brokers can use it to their advantage!

Bemac Feb 16, 2008 5:25pm | Post# 19

FXTitan,

I donít understand the benefit of hedging, ...

Best wishes,
David
Look Outside the Lagoon you are swimming in to Improve Your Hedge OPTIONS.

Commodity Currency Futures/Options.
...
I wanna
Woad Smiley.

dpereira Feb 16, 2008 6:21pm | Post# 20

I really like they way you Think, But...
 
Let's say you take a position and it goes against you, what do you do, you just wait until it goes back up ? When do you decide to get out ?


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