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Are trading costs the main reason of losses in trading?

  • #41
  • Jun 22, 2019 11:27am Jun 22, 2019 11:27am
Quoting havo
{quote} No, you got it wrong; first its either spread only OR spread (a tiny one) PLUS comission its your cost to trade (depends on your broker of course).. there its no "slippage" or extra crap*2/233+658 +a/b you are overthinking second: those "cost" you mention COULD BE a problem ONLY if you are "scalping" where you are aiming for a few pips/points and the size of the spread/comission BECOME significantly large to mess with your targets !! if you trade with larger targets (like the ones that comes with longer timeframes) then its not an issue...
You are exactly right. Well said. If you find yourself thinking about or blaming spreads, commissions, and slippage on your losses, then you have failed at trading. Please go find something else to do and stop asking stupid questions.
  • #42
  • Jun 22, 2019 5:15pm Jun 22, 2019 5:15pm
The Biggest cause of Trading losses is making Bad Trades! Simple. A good trade will make you money regardless of the minor internal cost factors.

  1. Guessing at the market
  2. Guessing at News releases
  3. Bad Money management
  4. Trying to squeeze that extra few Pips
  5. Relying totally on EA's
  6. Not following your system/strategy to the letter

Good trades and systems make money consistently and bad ones don't.

I will attach an "old school" print tool to help out. Use this Simple Checklist/Watchlist to slow you down and to make sure you have everything lined up before you make that next trade.
It allows for up to 4 Indicators, check Timeframes, check Fundamentals etc...just tick them off and make sure your next trade is TRULY what you want.

Happy Trading!
RR

Attached File(s)
File Type: pdf RRCL.pdf   28 KB | 210 downloads
  • #43
  • Jun 23, 2019 11:05am Jun 23, 2019 11:05am
Quoting GEfx
{quote} You are exactly right. Well said. If you find yourself thinking about or blaming spreads, commissions, and slippage on your losses, then you have failed at trading. Please go find something else to do and stop asking stupid questions.
It's rhetorical question.
I have no doubts that it's true.
And more important, all traders that are interested in maximizing efficiency think about this.

It's obvious for all traders with experience that close to institutional.
  • #44
  • Jun 23, 2019 11:10am Jun 23, 2019 11:10am
Quoting RangeRider
The Biggest cause of Trading losses is making Bad Trades! Simple. A good trade will make you money regardless of the minor internal cost factors. Guessing at the market Guessing at News releases Bad Money management Trying to squeeze that extra few Pips Relying totally on EA's Not following your system/strategy to the letter Good trades and systems make money consistently and bad ones don't. I will attach an "old school" print tool to help out. Use this Simple Checklist/Watchlist to slow you down and to make sure you have everything lined up before...
Of course it makes sense.
Without good system you don't need calculate trading cost and whatever.
But if you have (it's my default suggestion), knowing your trading cost and choosing the right place can help you to increase efficiency simply and fast.
  • #45
  • Jun 23, 2019 11:14am Jun 23, 2019 11:14am
Btw

Pepperstone trading cost analysis

Inserted Video
  • #46
  • Jun 23, 2019 11:39am Jun 23, 2019 11:39am
Quoting Lk009
{quote} It's rhetorical question. I have no doubts that it's true. And more important, all traders that are interested in maximizing efficiency think about this. It's obvious for all traders with experience that close to institutional.
Rhetorical or not, it's a stupid question. Regarding trading efficiency, successful retail traders know the costs of trading, but more to the point, they ignore those costs. It is literally the last thing that crosses your mind. And you should also understand that institutional traders focus 120% of their focus on minimizing risk, then maximizing profit. Costs are someone else's problem.
  • #47
  • Jun 23, 2019 12:09pm Jun 23, 2019 12:09pm
Quoting GEfx
{quote} Rhetorical or not, it's a stupid question. Regarding trading efficiency, successful retail traders know the costs of trading, but more to the point, they ignore those costs. It is literally the last thing that crosses your mind. And you should also understand that institutional traders focus 120% of their focus on minimizing risk, then maximizing profit. Costs are someone else's problem.
a slight correction?
And you should also understand that institutional traders focus 120% of their focus on their bonus check, ie. maximizing profit. Risks are someone else's problem.
there is always, always another trade!!
  • #48
  • Jun 23, 2019 1:06pm Jun 23, 2019 1:06pm
Quoting profitfarmer
{quote} a slight correction? And you should also understand that institutional traders focus 120% of their focus on their bonus check, ie. maximizing profit. Risks are someone else's problem.
Lol...I stand corrected. Whoever owns the book controls/owns the risk. Good trading to you!
  • #49
  • Jun 24, 2019 1:52am Jun 24, 2019 1:52am
If you include stop running as a cost.
  • #50
  • Jun 24, 2019 2:24am Jun 24, 2019 2:24am
First of all, it depends on particular trading system. If you are swing trader, in most of the cases you may pay no attention to trading costs at all (except overnight fees if applied). At the same time, trading costs are extremely important for scalpers or someone using an EA executing dozens of trades per day. In this case, significant trading costs may impact the overall performance of the strategy.
Another important point is one should pay attention to costs while developing and testing the strategy. For example, if risk-reward ratio is 1:1, the trader would get $10 risking with $10. But if it costs $1 to open the position and $1 to close it, in the same situation he would risk with $12 to get $8 - the difference on long periods would be huge. That is why it is important to conduct all profitability calculations including all trading costs.
  • #51
  • Jun 24, 2019 4:05am Jun 24, 2019 4:05am
Quoting GEfx
{quote} Rhetorical or not, it's a stupid question. Regarding trading efficiency, successful retail traders know the costs of trading, but more to the point, they ignore those costs. It is literally the last thing that crosses your mind. And you should also understand that institutional traders focus 120% of their focus on minimizing risk, then maximizing profit. Costs are someone else's problem.
  • #52
  • Jun 24, 2019 4:05am Jun 24, 2019 4:05am
Quoting profitfarmer
{quote} a slight correction? And you should also understand that institutional traders focus 120% of their focus on their bonus check, ie. maximizing profit. Risks are someone else's problem.
exactly)
  • #53
  • Jun 24, 2019 4:19am Jun 24, 2019 4:19am
Quoting JCAnderson
First of all, it depends on particular trading system. If you are swing trader, in most of the cases you may pay no attention to trading costs at all (except overnight fees if applied). At the same time, trading costs are extremely important for scalpers or someone using an EA executing dozens of trades per day. In this case, significant trading costs may impact the overall performance of the strategy. Another important point is one should pay attention to costs while developing and testing the strategy. For example, if risk-reward ratio is 1:1,...
Sure, but sometines it ifluences even on swing traders.

I have several system with average holding time more than 1D. And efficiency was very different at different brokers.
It seems that it doesn`t matter, but if we look on long period, it will be up to 3-5% difference in yearly horizon between the best and the worst brokers.
  • #54
  • Jun 24, 2019 4:20am Jun 24, 2019 4:20am
The best answer to a problem is the simple one. In my humble opinion guys I think why most traders lose is because they simply don't UNDERSTAND forex trading, they only KNOW ....they don't Understand. Knowing a concept is no guarantee you understand the concept.- Okpala
  • #55
  • Jun 24, 2019 4:52am Jun 24, 2019 4:52am
Quoting Okpala1988
The best answer to a problem is the simple one. In my humble opinion guys I think why most traders lose is because they simply don't UNDERSTAND forex trading, they only KNOW ....they don't Understand. Knowing a concept is no guarantee you understand the concept.- Okpala
Please share with us your understanding)
  • #56
  • Jun 24, 2019 4:58am Jun 24, 2019 4:58am
Trading (execution) costs account for a lot of the reason retail traders lose money. If they are right 50% of the time they'll still lose money by paying spread.

However, it turns out the retail traders (on average) lose more than just the spread. They have negative alpha!

Here are 10 rookie mistakes to avoid:

1. Taking too large a position

You should be working on the assumption that you have a 50% chance of winning and 50% chance of losing. Losing (or winning) the first three trades in a row will happen to one in ten people on average so don’t let a losing streak clean out your balance. Aim to bet no more than 2% of your capital on any single trade.

2. Not having good risk:reward ratios

You should be looking to risk X to gain 3X, in general. Wait until the right trade set ups appear and don’t go for low quality risk:reward trades.


3. Not using a trading plan

Without a plan it is hard for beginners to be disciplined. A plan forces you to consider all the necessary risk management measures and allows you to review what you were thinking at the time you put the trade on — not looking at it with the benefit of world’s greatest trader, Harry Hindsight.


4. Not using stops

Good risk management requires a stop loss. You have to be able to cap your downside and know when you put on the trade the price at which you should get out. Do not risk getting emotionally wed to your trade and having it move drastically against you, whilst the original motivations for the trade have long since been invalidated.

5. Taking poor asymmetric risks

Don’t pick up pennies in front of the steam-roller. If something looks like “free money” remember there is no such thing. The small return you’re earning is downpayment for a lottery ticket you have sold.


6. Taking profit too early

Although it is tempting, do not take profit on the good trades too early. Let them run. You are looking for that 1:3 ratio. It is working as you had hoped - if you feel comfortable with the risk, you might even consider adding.


7. Not understanding bets are correlated

Selling EURGBP, DAX, EURUSD, and EURJPY is basically a huge bet on the Euro area. Be aware of this. One idiosyncratic factor could destroy your entire portfolio. Limit your exposure to any one theme to no more than 8% of your balance.


8. Looking at returns without considering what risks need be taken

Smooth PNL profiles without huge drawdowns are easier to live with than violently volatile ones with big daily drawdowns. Remember that there could have been many other outcomes: a huge naked directional bet on a single product says nothing about an investors’ long-term prospects, unlike a track record of many smaller bets. Use the Sharpe ratio as a tool to gauge the quality of returns. Risks are fine and healthy but you should be well compensated for taking them.


9. Over-trading

If there are no good trades then just don’t trade. Warren Buffet once compared investing to baseball, noting that a baseball player has to swing and run after three pitches whereas he could look at trades all day every day and only go for the ones he thought were home runs. Overtrading due to boredom will deplete your account balance - you’ll pay a lot in spread and you’ll be entering low quality trades. Be patient.



10. Not accounting for cognitive biases

Everyone has them but acknowledging the effect of these biases on your decision making will help you avoid their worst effects. Are you too loss-averse to buy an unloved stock that has sold-off or does this trade offer a decent prospect of return at this lower price? If GBPUSD has been very quiet and not moved much this year does that mean it never will in future?
  • #57
  • Edited 1:31pm Jun 24, 2019 6:23am | Edited 1:31pm
Quoting clarke1386
Trading (execution) costs account for a lot of the reason retail traders lose money. If they are right 50% of the time they'll still lose money by paying spread. However, it turns out the retail traders (on average) lose more than just the spread. They have negative alpha! Here are 10 rookie mistakes to avoid: 1. Taking too large a position You should be working on the assumption that you have a 50% chance of winning and 50% chance of losing. Losing (or winning) the first three trades in a row will happen to one in ten people on average so don’t...
Sure. you are right
Trading Cost becomes a problem only when you have good system
Before this is only one reason of losses
  • #58
  • Jun 29, 2019 6:30am Jun 29, 2019 6:30am
Quoting Lk009
{quote} yes, i agree, but at expensive broker you profit will be lower, so why?))
Because profit must be considered on a consistent long term basis, never on low spreads.
  • #59
  • Jun 29, 2019 7:54am Jun 29, 2019 7:54am
There is no doubt that to increase efficiency and minimize costs is one of vital factors that differentiates between a good trader and a very good one. (Losers are not mentioned in here) However, within the same broker there is a continuous fluctuation in execution and in costs. Any declared data for costs, spread, and slippage by brokers are promotional & cannot be reliable all the time or even the majority of important times( considering volatility times are times of big action when trades are placed and wide spread/slippage occurs)

My quarterly statement shows my broker made $5674 in costs, so Technically I worked for my broker, using my own capital and gave him 5 grands without risking any of his money.

there is a priceless factor in here which is My time. It is a must to be added to the equation and see if trading is still worth it Even if you double your account every year.

Who claims trading costs are unimportant could be a trader, may be good trader but for sure not among the best traders.

I am interested to discuss new solutions/ ideas
  • #60
  • Jul 1, 2019 5:03pm Jul 1, 2019 5:03pm
Quoting Scorp1on1
There is no doubt that to increase efficiency and minimize costs is one of vital factors that differentiates between a good trader and a very good one. (Losers are not mentioned in here) However, within the same broker there is a continuous fluctuation in execution and in costs. Any declared data for costs, spread, and slippage by brokers are promotional & cannot be reliable all the time or even the majority of important times( considering volatility times are times of big action when trades are placed and wide spread/slippage occurs) My quarterly...
The premise of this thread is that trading costs are the reason for trading losses. I think it's clear that this is a false claim. As far as trading efficiency, if a 2 pip spread going into and out of a position impacts your trading efficiency, you trade very differently from me. I reach for no less than 50 pips per trade. That's 50 pips for me, and 4 for the broker (2 going in and 2 coming out). If someone requires 25 trades to capture the same 50 pips, then that's 50 for them 100 for the broker (25 trades time 2 pips to enter and 2 pips to get out). I haven't thought about trading costs on 10 years. That second trader, who is so worried about trading costs, will crash out of trading.
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