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Intimidated by the Charts

  • #1
  • First Post: Jul 29, 2007 11:26am Jul 29, 2007 11:26am
I'm a newbie and just got interested in Forex trading the past few months. I opened an account at FXCM with $5,000, hoping to get in when I'm ready. In the meantime, I've been using the demo account to get a feel of what the market is like, etc.

But it looks like I'm never going to be ready because I am intimidated with reading the charts. Is there a way I could do this despite my lack of knowledge of the charts? Maybe some kind soul can recommend me a trading system (s) that make sense and take the guess work out for me. Or even better, a legitimate software program that can give me the buy/sell signals that can save me time and the aggravation?

I may be naive, perhaps there is nothing I can do about it but your feedback will surely put me in perspective of whether I can actually do Forex trading despite my lack of education. Thanks so much.
  • #2
  • Jul 29, 2007 1:33pm Jul 29, 2007 1:33pm
Learning the game of forex takes time and patience. I opened a demo account in Dec. 2006 and will finally be going live next month. Most of the time was figuring out the timeframes and techniques that work for me. I recommend checking out the James16 thread in the trading systems forum for starters. Stick to the demo or trade a very small amount for at least six months before jumping in. I know doing that saved me a lot of money and headache.

Scott
  • #3
  • Jul 29, 2007 2:43pm Jul 29, 2007 2:43pm
Quoting fatdragon88
But it looks like I'm never going to be ready because I am intimidated with reading the charts. Is there a way I could do this despite my lack of knowledge of the charts? Maybe some kind soul can recommend me a trading system (s) that make sense and take the guess work out for me. Or even better, a legitimate software program that can give me the buy/sell signals that can save me time and the aggravation?

I may be naive, perhaps there is nothing I can do about it but your feedback will surely put me in perspective of whether I can actually do Forex trading despite my lack of education. Thanks so much.
In my opinion, Learning FX is like learning to play the piano, You can't leave the hard work for someone else while You just sit down and hear the music. I would say forget about software, EA's or any other kind of automated trading stuff, and start learning how price action works. I think that basically, FX is just about looking at the chart and understanding what's going on in that chart (yeah I know there's much more, just trying to keep it simple), so if You can't do that You're missing a very important part. Everybody here's recommending the James16 stuff, I'm not a member of the James16 private but I've seen some of his stuff in the public forum and it's good. I mean, don't spend Your money and time looking for software programs hoping they will tell You when to buy or sell, because it doesn't work that way.

Anyway, be patient. You know that You're not ready to trade...so just don't do it.

Good luck!
"I say high, You say low, You say why, and I say I don't know..."
  • #4
  • Jul 29, 2007 2:56pm Jul 29, 2007 2:56pm
Quoting fatdragon88
I opened an account at FXCM with $5,000, hoping to get in when I'm ready.
Sorry, I forgot...

I don't remember if FXCM offers micro-lots, but I think they don't. Maybe You should consider to go for micro-lots (after You've done your homework and You're ready to trade). That way You can just place only a couple of hundreds dollars in your account and trade this way: 1 pip= $ 0.10

That will be much safer.
"I say high, You say low, You say why, and I say I don't know..."
  • #5
  • Jul 29, 2007 5:38pm Jul 29, 2007 5:38pm
Quoting fatdragon88
I'm a newbie and just got interested in Forex trading the past few months. I opened an account at FXCM with $5,000, hoping to get in when I'm ready.
My advice: unless you have a ton of money elsewhere where your $5,000 represents money you could lose and not mean anything....close the FXCM account! You should demo trade for a good period of time to get used to the charts. Take your time, read some of the more popular posts (James16 wouid probably be best), and just trade on a demo.

Even once you get past being intimidated by the charts, you'd want to start with a small amount of money anyway, and only risk about 1% per trade to start building some confidence.
  • #6
  • Jul 29, 2007 5:54pm Jul 29, 2007 5:54pm
Create Flash Cards of your Major Miscalculations.

ie. Go back {on the chart} to where you entered and take a Screenshot.
Next, take a screenshot of the deepest move against that position.

Combine as one image & save it in "My Trading Education Images"

Spend some downtime on a weekend review of these FLASH CARDS.
  • #7
  • Jul 30, 2007 8:00am Jul 30, 2007 8:00am
thank you all for your feedback. one more question: does anyone of you try the trading systems listed on the post? seems easy with just price action as an indicator. i thought "part-time wealth building trading system- daily or weekly scalping" started off by tkimble was really interesting. any comments?

thanks so much.
  • #8
  • Jul 30, 2007 9:22am Jul 30, 2007 9:22am
Quoting fatdragon88
I'm a newbie and just got interested in Forex trading the past few months. I opened an account at FXCM with $5,000, hoping to get in when I'm ready. In the meantime, I've been using the demo account to get a feel of what the market is like, etc.

But it looks like I'm never going to be ready because I am intimidated with reading the charts. Is there a way I could do this despite my lack of knowledge of the charts? Maybe some kind soul can recommend me a trading system (s) that make sense and take the guess work out for me. Or even better, a legitimate software program that can give me the buy/sell signals that can save me time and the aggravation?

I may be naive, perhaps there is nothing I can do about it but your feedback will surely put me in perspective of whether I can actually do Forex trading despite my lack of education. Thanks so much.

don't be intimidated. All you need in forex to be successful is basic 8th grade math, patience, and determination. This is why ANYBODY can trade. Just spend time looking back at historical charts and think about concepts that seems to recur over and over and make a system out of that.
  • #9
  • Jul 30, 2007 10:13am Jul 30, 2007 10:13am
Quoting hilmy83
don't be intimidated. All you need in forex to be successful is basic 8th grade math, patience, and determination. This is why ANYBODY can trade. Just spend time looking back at historical charts and think about concepts that seems to recur over and over and make a system out of that.
Yes, I agree. The human brain is a wonderful machine, it really excels at identifying visual patterns (nearly 1/3 of the brain is devoted, in some way, to the act of seeing). Look at the charts and find things that happen over and over - once you see it happening in real-time, exploit it for financial gain.

Incidentally, this is how many business succeed. They do something successful once, and then repeat it over and over and over (i.e. McDonald's).

-=DAVE=-
  • #10
  • Jul 30, 2007 10:21am Jul 30, 2007 10:21am
Quoting fatdragon88
thank you all for your feedback. one more question: does anyone of you try the trading systems listed on the post? seems easy with just price action as an indicator. i thought "part-time wealth building trading system- daily or weekly scalping" started off by tkimble was really interesting. any comments?

thanks so much.
I am waiting to see a post in which somebody tried out a "system" posted on a forum and declared that by trading that system they were able to quit their day job and retire (also posting their brokerage statements for proof).

I haven't seen a post like this. Not a single one. But I do see lots of mechanical systems out there. In fairness, I just may not be aware of such a post and would welcome it if somebody could show me one.

I think you should stick with price action. When I took the mechanical black-box stuff out of the equation, and the indicators off my charts, I began to experience much more success. This is just my opinion as it comes from my own experiences. You may find success with the tkimble systems and the like - I hope it works out for you! Best of luck!

-=DAVE=-
  • #11
  • Edited 5:31pm Jul 30, 2007 5:03pm | Edited 5:31pm
Dave

I've just re-read Chapters 6 & 7 of Mark Douglas' classic Trading in the Zone. I should point out that the book was written some years back, and technology has doubtless changed the nature of the battlefield since then; also I suspect the author's experience lay more with stocks and futures than forex. However, let's assume that his principles still hold good.

What Mark says makes much more sense to me now than when I first read his book. It has reawakened my understanding as to why price movement in such a random process. We know that fear and greed are among the most irresistible of human emotions, hence prices must always move between "overbought" and "oversold" extremes. However, we can not predict who the participants will be at any given point, what their goals and aspirations are, and what their emotions will drive them to do.

As an illustrative example, Mark tells a story of a capable analyst who was hired by a firm. The analyst explained to his new boss how he could predict turning points by using support and resistance levels. When soybeans price reached a major support level, his boss said to him "OK, what you're saying is that price can go no lower, right?" The analyst said "Absolutely. This is the low of the day". His boss immediately picked up the phone and said "Sell two million beans at market", and within 30 seconds, the soybean price had dropped another 10c. The boss said "Now where did you say price was going to stop? If I can cause that, anybody can".

Of course the point is that the action of any one of a million traders can influence price, and that to have any degree of certainty in our analysis, we would need to have an omniscient view. Not having this view, price movement, especially in the short term, will always appear random to us, even though the underlying reasons may be anything but.

I believe this helps to explain why many automated systems suffer from a major handicap: they are over-optimized. If the success of a system is heavily dependent on, for example, exactly how moving averages are calibrated for a crossover entry, or at what arbitrary points profits are taken, or a stoploss set and/or trailed, then it can never hope to deliver profit with any degree of consistency. Given a large enough sample of trades, I suspect that we might discover that the precise timing of entries and exits is virtually unimportant; and hence why the search for the "holy grail" will always prove futile.

Hence the best we can hope to do is devise, and utilize "robust" ideas, those that many other traders do, on the assumption that, across a large enough sample of participants, they will, on balance, "capture" their essential, collective way of thinking. I suspect that simple concepts like trendlines, support/resistance levels, Fibo retracements, which (unlike MAs or RSIs, for example) plot identically over a number of different timeframes, are likely to be more universally recognized, and are therefore more likely to be acted upon, creating the "self fulfilling prophecy" effect. Confluence takes this idea one step further. I would also suggest that another robust idea is to trade only in the direction of the prevailing trend. Furthermore, the longer one's preferred trading timeframe, the greater the opportunity to "capture" the collective psychology of the most diverse number of participants. This may well be a contributing reason as to why longer term charts tend to "trend" better (less randomness) than shorter term ones.

I'm not saying that EAs can't work profitably. For starters, they eliminate psychology from the equation. And as a software developer myself, I realize that it is theoretically possible to translate the decision-making processes of a master trader into computer code, and although not a trivial task, a fairly accurate approximation could be achieved. Many EAs may already be doing this; they may be programmed around "robust" principles, those that somehow capture a recurring inefficiency (aspect of non-randomness) in the sentiment that drives price action.

During my research and testing, I may not stumble upon one of these inefficiencies. Hence I realize that I may never become a consistently profitable trader; instead, one of the 95% that fall by the wayside. Mark Douglas echoes my thoughts on having flexible expectations toward profit and performance, and adopting a detached, "let's see what happens" approach toward every trade. On the positive side, he also reiterates that a very small edge allows casinos to profit consistently, despite each event (blackjack hand, or spin of the roulette wheel) having a completely random outcome. Of course the analogy is slightly flawed because the probabilities for casino games can be calculated precisely, and in advance.

Given average daily price moves, the (spread) costs involved in intraday trading are generally higher than the odds against the punter at the casino, hence a greater edge is required to break even. Currently I have no idea as to whether my evolving system is capable of achieving this, which is another reason why my expectations are neutral, and I play only with money that I have no other competing use for. I realize that, despite sizing positions modestly, to keep me in the learning game as long as possible, the most likely outcome (apparently 95%) is that I will end up blowing my account.

A system with a genuine edge is pure gold. Like you say with McDonalds, it is just a case of repeating the success formula over and over, and (by using fixed fractional sizing), exploit the magic of compounding, to attain exponentially increasing gains.

Best wishes, that only one Dave can give to another

David
  • #12
  • Jul 30, 2007 11:06pm Jul 30, 2007 11:06pm
Dave,

This is awesome. I had to read it twice - this was very thought-out and well written.


Quoting hanover
It has reawakened my understanding as to why price movement in such a random process. We know that fear and greed are among the most irresistible of human emotions, hence prices must always move between "overbought" and "oversold" extremes. However, we can not predict who the participants will be at any given point, what their goals and aspirations are, and what their emotions will drive them to do.
Ah, this is music to my ears! I am seemingly the staunchest supporter of price being a random, stochastic process on this forum - and that is a supremely unpopular perspective to have around here! I like how you illustrate the fact that we cannot predict the where or when the various particpants will act. That is a key concept - it cannot be known in the present.

I see people putting up pictures of how their price projections and predictions played out. That is fine, but are they still using stops in their trading? If so, price exhibits random behavior (it cannot be predicted with 100% certainty). The farther out we try and predict, the more usless the predictions become without further precision.

Take, for instance, a group of billiard balls on a pool table. Smacking one of them and predicting its motion is pretty simple. You need to know a few masses, strength of the hit, friction of the table - all elementary calculations. To begin predicting where the 1st ball will go after it hits the 2nd ball, and where that 2nd ball will end up, we need to be more precise in our measurements and calculations. By the time we get around to predicting the 9th or 10th collision and its result, we're going to have to take into account the gravitional effect of the people standing around the pool table and heaven help us if they more their arm or walk about during the collisions. If we had enough balls on the table, we'd eventually have to know the position of every single particle in the universe. We cannot possibly know this with any degree of certainty.

I digress. Let's apply this to trading, which you did so wonderfully in the example below....

Quoting hanover
As an illustrative example, Mark tells a story of a capable analyst who was hired by a firm. The analyst explained to his new boss how he could predict turning points by using support and resistance levels. When soybeans price reached a major support level, his boss said to him "OK, what you're saying is that price can go no lower, right?" The analyst said "Absolutely. This is the low of the day". His boss immediately picked up the phone and said "Sell two million beans at market", and within 30 seconds, the soybean price had dropped another 10c. The boss said "Now where did you say price was going to stop? If I can cause that, anybody can".

Of course the point is that the action of any one of a million traders can influence price, and that to have any degree of certainty in our analysis, we would need to have an omniscient view. Not having this view, price movement, especially in the short term, will always appear random to us, even though the underlying reasons may be anything but.
Ah, again that is a symphony of sound to my ears! Like the billiard balls bouncing around, we would need to know the actions and motives of all the participants AHEAD of time to make a truely precise, accurate forecast of price action. If we did know this, it would efficiently work its way into the price and we wouldn't be "waiting" for the events to unfold - indeed we'd act on the information already and there would be no uncertainty in the financial markets!

You are correct again in saying that the underlying reasons are anything but random - I agree there are always reasons for price moving. However, they cannot be predicted in advance - ergo we have a random phenomenon.

Quoting hanover
I believe this helps to explain why many automated systems suffer from a major handicap: they are over-optimized. If the success of a system is heavily dependent on, for example, exactly how moving averages are calibrated for a crossover entry, or at what arbitrary points profits are taken, or a stoploss set and/or trailed, then it can never hope to deliver profit with any degree of consistency. Given a large enough sample of trades, I suspect that we might discover that the precise timing of entries and exits is virtually unimportant; and hence why the search for the "holy grail" will always prove futile.
This is quite insightful. I think that you are right on the money with systems being "over-optimized". Many of the richest traders in the world made their fortunes at a time when their particular style of trading "worked" because it was able to exploit some temporary market event. For instance, many stock traders in the 1990's became wealthy because they observed a reoccuring event: anything with .com doubled in price every quarter. These enterprising souls threw everything they had at the market and made out wonderfully. Only their success was dependent not on their predicting abilities in the long-term, but on their observation of a small sample of events.

Well, we all know how this turned out. Eventually their small sample caught up with them and they were forced to either adapt to the "normal" market or die out. Funny, I don't hear anyone talking about the "new economy" any more. Interestingly enough, Darwin's theory of evolution does not state the the strongest or fittest will survive - it states that the organism MOST ADAPTABLE TO CHANGE will survive.

Quoting hanover
Hence the best we can hope to do is devise, and utilize "robust" ideas, those that many other traders do, on the assumption that, across a large enough sample of participants, they will, on balance, "capture" their essential, collective way of thinking. I suspect that simple concepts like trendlines, support/resistance levels, Fibo retracements, which (unlike MAs or RSIs, for example) plot identically over a number of different timeframes, are likely to be more universally recognized, and are therefore more likely to be acted upon, creating the "self fulfilling prophecy" effect. Confluence takes this idea one step further. I would also suggest that another robust idea is to trade only in the direction of the prevailing trend. Furthermore, the longer one's preferred trading timeframe, the greater the opportunity to "capture" the collective psychology of the most diverse number of participants. This may well be a contributing reason as to why longer term charts tend to "trend" better (less randomness) than shorter term ones.
There are so many excellent points made in this paragraph that I don't know where to begin.

Robustness is a feature that I find lacking in many trading methodologies. Simplicity is something that is lauded, but just because RSI>50 and close above LWMA 55 is simple does not make for a robust trading system. We do not have the benefit of hindsight while trading in real-time. We cannot say, oh the market was ranging therefore I would not have traded during this time when using a trend-following system. I want somebody to tell me a system that accurately exposes the future of the market's price action in terms of trending or ranging. If this cannot be done, I am sorry but I refuse to believe or state anything else than price movement in random. Not that price is "reason-less", but that it cannot be predicted in advance. The only solution is to incorporate a robust method that treads water in all scenarios - or at least makes more in the "good" times than it loses in the "bad".

Your comment about "large enough sample of trades" is also very well put. Ten winning trades is no indicators of future success. One thousand is. Your mention of self-fulfilling prophecy is also something I hold dear. It isn't what you think about the market that counts, nor is it what everyone else thinks that determines movement. Rather, it is what everyone thinks about what everyone else thinks that matters (either that makes sense or it doesn't, very hard to explain). This type of collective thinking manifests itself in what we call price action. Some people are prepared for this and make educated trades based on market sentiment. Some don't and instead use "indicators".

Quoting hanover
I'm not saying that EAs can't work profitably. For starters, they eliminate psychology from the equation. And as a software developer myself, I realize that it is theoretically possible to translate the decision-making processes of a master trader into computer code, and although not a trivial task, a fairly accurate approximation could be achieved. Many EAs may already be doing this; they may be programmed around "robust" principles, those that somehow capture a recurring inefficiency (aspect of non-randomness) in the sentiment that drives price action.
I would say that many top-level trading houses are diligently working hard to code expert systems or neural networks to trade. These are far beyond MA crossovers and the like.

Quoting hanover
During my research and testing, I may not stumble upon one of these inefficiencies. Hence I realize that I may never become a consistently profitable trader; instead, one of the 95% that fall by the wayside. Mark Douglas echoes my thoughts on having flexible expectations toward profit and performance, and adopting a detached, "let's see what happens" approach toward every trade.
Yes, I know that I am playing a game that is vastly stacked against me. Yet I carry on nonetheless! I have a 5 in 100 chance of success. I wonder constantly if my failure or success will be a matter of luck instead of skill. If I cannot accurately predict the future of financial markets with anything better than an understanding of randomness on my side, I shouldn't be able to predict my own ability to thrive or wither in such an environment, should I?

Quoting hanover
On the positive side, he also reiterates that a very small edge allows casinos to profit consistently, despite each event (blackjack hand, or spin of the roulette wheel) having a completely random outcome. Of course the analogy is slightly flawed because the probabilities for casino games can be calculated precisely, and in advance.
In addition, casinos always always always use "stops". You cannot bet more than the table limit. This prevents any one player from "getting lucky" and walking out with the deed to the MGM Grand. The casinos are all practicing very good money management. They know they will lose, they are just spreading their money over many different types of games and tables of games while limiting their downside. Hmmm, a solid understanding of probability and randomness with a fanatical penchant for loss limitations and capital preservation....sounds like the qualities of a terrific trader doesn't it? Maybe there is more of a gambling connection to trading than I thought.

Quoting hanover

A system with a genuine edge is pure gold. Like you say with McDonalds, it is just a case of repeating the success formula over and over, and (by using fixed fractional sizing), exploit the magic of compounding, to attain exponentially increasing gains.
Amen.

Quoting hanover
Best wishes, that only one Dave can give to another

David
And the same to you! Best wishes and many profitable pips!

-=DAVE=-
  • #13
  • Jul 31, 2007 4:30am Jul 31, 2007 4:30am
bravo to both of you , dave and david for such a well thought post. but i could only digest 50% of it as it is too academic for me. now i have a double dose of intimidation but i guess i have to live with it until i find a system that will work for me. and it's not because i want to take the easy way out. i believe in keeping things simple. i've copied the post in "part time wealth building trading system - weekly scalping". he has at least another 3 systems. perhaps some of you can comment.

thanks so much.

Part Time Wealth Building Trading System - Weekly Scalping
OK. I have decided to start a new thread and preview a weekly system that I use which has proven to be more profitable than the trending system. There are many similar systems at this website but I strive for simplicity. The system is again very simple.

Create a weekly chart. Place trades 50 PIPS above or below the close for the previous week. Use a fixed 30 PIP stop. No profit targets. Let the trade run for the entire week and close during the final 30 minutes of the market for the week. The great feature of this system is that more often than not the weekly trend will establish itself and stay in tact from the Monday or Tuesday of the trading session for that week.

GBP/USD Example:

Previous weekly close: 1.9597
Buy: 1.9647
Sell: 1.9547

The following rule is a bit different than most trading systems of this style:

If the "Buy" is executed, move the sell up to the previous weeks close (1.9597 in this case)

If the "Sell" is executed, move the buy down to the previous weeks close (in this case likewise 1.9597)

These two rules permit a more robust and agressive entry after losing trades.

Recommend volatile markets (USD/CHF, GPB/USD, etc.)

Here is the current trade that I am in using the GPB/USD:

Short 1.9597 after a 30 PIP loss on the "Buy" trade.

Use fixed 30 PIP stops.

This system averages approximately 150 pips per week in the GBP/USD market without any intervention. I am a big believer that most people over trade the market. This system will minimize your trades by its very nature.

Happy Trading.

Tkimble
  • #14
  • Jul 31, 2007 2:33pm Jul 31, 2007 2:33pm
Fatdragon88,

I'm not familiar with the system that you describe. If you want to try this system, all I can suggest is that you read all of the threads related to it. I did a search for "part time wealth" and found these:
http://www.forexfactory.com/showthread.php?t=10511
http://www.forexfactory.com/showthread.php?t=11937
http://www.forexfactory.com/showthread.php?t=19391
http://www.forexfactory.com/showthread.php?t=13507
http://www.forexfactory.com/showthread.php?t=19390

I couldn't find anything on the "Journal Factory" forum. This is normally where the system inventor posts the results of his trades in real-time, thereby building a history showing how profitable each trade was. Anyway, one positive aspect is that, judging by the number of posts in the above threads, this system (and its variations) appear to have been around for a long time.

The best trading methods I've encountered are in the James16 thread. Start here:
http://www.forexfactory.com/showthread.php?t=2331
This is not a complete system, but a set of illustrations showing potentially profitable bar/candle entry patterns. You can also subscribe to the private forum. I did for 2 months earlier this year, when the cost was USD129 per month (not sure if it's changed since then). This extends these concepts, and there is also a system (The Knife) posted by Diallist, whom I understand is a successful trader, and Fijitrader, who writes about money management and psychology. I ended my subscription due to ill-health at the time, and also because there was simply too much information there for me to take on board. What I will say about these guys is that they have vast experience, genuine integrity, and are very willing and generous in the way they offer help.

I would also suggest that you read all of the sticky posts on the "Forex Beginner Q&A" forum, if you haven't already done so.

Good luck
David
  • #15
  • Jul 31, 2007 2:40pm Jul 31, 2007 2:40pm
I know everyone is going to tell you to demo or use micro lots but IMHO you'll never learn anything unless real money is involved and no micro lots doesn't count as real money plus demoing or micro lots is very boring beleive me you are not going to get out of bed even for a 1000 pip on demo or a micro account plus emotions are not involved when a pip is worth 1 cent
so here's my advice: GO LIVE but risk around 0.5% of your account on a single trade this way you'll experience real trading and even if you lose 20 trades in a row it still represents no more than 10% of your balance
  • #16
  • Edited Aug 1, 2007 2:15pm Jul 31, 2007 4:48pm | Edited Aug 1, 2007 2:15pm
Quoting megadave5000
This is awesome. I had to read it twice - this was very thought-out and well written.....
Hi Dave

Thanks for your comprehensive and complimentary reply. Sometimes it feels very much like I'm a lone voice here, so it's especially gratifying to find somebody who shares my apparently unconventional angle, one that I concede is influenced by my background in software development and probability theory.

Commenting on your points one by one, would pretty much result in my repeating them, since your thoughts are essentially an extension of my own.

I read time and again that profitable trading is all about money management (MM) and psychology. All I can say is this: I started testing equity/CFD systems 6 years ago, and moved to forex about 12 months back. If all there was to successful trading was MM + psychology, then after 6 years I (and no doubt many others) would be well on the way toward being millionaires.

No matter how many times I read the "MM + psychology" posts, and the "exit is everything; cut losses, let profits run" posts, I simply can't get past this inescapable mathematical reality: if price movement is random, then it's no more possible to succeed long term at trading than it is to beat the casino at blackjack or roulette. Costs make trading a negative sum game. A technical system can only be effective to the extent that it somehow latches onto a non-random pattern, and one that recurs consistently enough to provide an edge that swings the probability significantly back into an individual's favor, and at the expense of another individual who, being equally convinced by his own analysis, happens to be taking the opposite position.

So how do I account for all of the "MM + psychology" posts?

What I believe is that faulty MM or psychology will cause failure more quickly than an unprofitable method. If one oversizes positions; becomes impatient, anxious, stressed or greedy; overtrades; revenge trades; or otherwise makes emotionally charged decisions, then this will blow out an account much more quickly than a method that is (say) 5% unprofitable. In other words, in many cases "MM + psychology" masks any ineffectiveness in one's method, and causes failure which would have eventually occurred in any case, had one had the opportunity to trade the method across a sample of market conditions large and diverse enough to provide long term statistical validity. Hence failure gets constantly attributed to faulty MM/psychology.

Speaking of statistical validity, I fear that many traders have little understanding of the concept. I think that many of the success stories that we read (especially testimonials on vendors' sites "wow - I doubled my account in just two weeks!") have been written during periods when market conditions happen to have suited one's method. Like you said, many of the 1990's dot com success stories were short lived. Any trend-following system will deliver profit in a trending climate, hence the cliche "don't confuse brains with a bull market".

Without a demonstrable edge, any gains can only be fortuitous, and luck is not sustainable indefinitely.

I can not grasp why people believe that, while acknowledging that they can't predict future market direction with anything greater than 50% certainty, that cutting losses and letting profits run will prove successful. It makes the assumption that the market is always "trending". I agree that every move amounts to some kind of trend, but if these "trends" are random in both their origin and their length, then that's effectively just another way of expressing the overall randomness of price movement.

I believe that another misconception is attributing profitability to exit. Sure, it's true that if one exits 100 pips beyond entry, the profit is greater than 50 pips beyond entry. But if one had entered 50 pips earlier, that would have equally had a 50 pip effect on profit. Again, saying that the guy who lets profits run to the point where he takes 100 pips will be more profitable than the guy who takes profit at 50 pips, is misleading. The fact is that, everything else being equal, taking profit at 50 instead of 100 pips will approximately double your overall win rate. I believe that many of the misconceptions stem from a "current trade" mind set, as opposed to viewing the "annual bottom line" picture. Another example is moving the stoploss to breakeven quickly to lock in profit. That will ensure the current trade is profitable, but if applied consistently, will choke the profitability of many other trades, as they get stopped out more quickly. IMHO, tinkering with arbitrary TP and SL values results in compromising win size against win rate, and is ultimately just another form of curve fitting.

I also read that a positive outlook is an important ingredient in success. I don't disagree, but would (yet again!) point out that in itself it's not going to overcome any inability of a system to overcome randomness plus costs.

Trading in the Zone is an excellent read, but it makes the assumption that one already has a profitable method, and therefore attributes failure due to faulty implementation, i.e. psychology.

There's one possibility that weighs heavily with me. Perhaps I've set my performance expectations too high. But I'm not willing to bet my shirt on a method that provides something like a 5% edge, +/- 10% depending on whether the market is about to trend or not.

Anyway, like you, I will continue to work towards finding that inefficiency that will provide the golden "edge", for two reasons. Firstly, I've read Jack Schwager's Market Wizards books, and I believe the stories of the elite few who claim they have attained prolonged success; and secondly, I have nothing to lose, and the possibility of financial freedom - however difficult - seems a very worthwhile one.

Ah well, for whatever it's worth, that's my rant for the day!

David
  • #17
  • Jul 31, 2007 10:15pm Jul 31, 2007 10:15pm
Fatdragon88,

In addition to the James16 material, here's another thread that might be worth a read:
http://www.forexfactory.com/showthread.php?t=27286
Jacko generously describes his method in the first few posts of this thread. It sounds like he's a very successful trader.

Also, regarding exits, IMHO there are some good posts in this thread:
http://www.forexfactory.com/showthread.php?p=184302
especially #2 by Dopey.

Good luck
David
  • #18
  • Aug 1, 2007 1:16am Aug 1, 2007 1:16am
I would withdrawal that $5000 as soon as possible... take your wife or significant other(s) on a nice vacation. You'll have more fun that way.

...and no, I'm not being sarcastic -- I'm quite serious.
Mr. Trend
  • #19
  • Aug 1, 2007 2:20am Aug 1, 2007 2:20am
David (hanover), I second your remarks and say thanks for the great post. fatdragon, the sooner you read "Trading In The Zone" by Mark Douglas, the easier your life will be. Honestly. I read all 200 pages in one day, and it was the only book I've ever read that I literally could NOT put down (okay, except when I went to the bathroom, but even then I took it with me.... okay, TMI).

As for indicators, you will find that they ALL lag behind price, because they are all based on price. They are all approximations of price, and I liken them ALL to putting on hazy glasses to see something that is otherwise perfectly visible. They will confuse you, and will frustrate you. But it's important for you to go through this process yourself because you need to convince yourself that they're crap. I know I sound harsh, but in my short 5 months of forex trading, I've averaged about 10 hours per day studying charts, indicators, learning WHY things work the way they do, and pissing off my girlfriend so many times that I lost count about 4 months ago.

You will see about one new "system" posted per day in the Trading Systems category. Go there. Read the system. Try to backtest it yourself. Verify that about 80% of them backtest well. None of them based on indicators forward test well over a large enough sample of trades, however. Convince yourself of this. Taking someone else's word for it can be your biggest mistake in trading. Why? Because you must be confident, fearless, and without doubt in the way YOU trade. Again, don't try to cut corners and take my word for it--waste the time yourself so you will truly appreciate the simplicity of naked charts (well, scantily clad charts anyway... lines provide some cover I suppose) and you will have no doubts that ALL systems based on indicators alone WILL fail over the long haul, because they cannot adapt to the market the way a human reading the market price action can.

You will go through cycles where you love the simplicity of price action analysis, then you see a new system that just looks SOOOO promising, and you will try this for a while, and then come back to price, and then go to another, then come back to price, then go to news trading for a while even (god help you), and come back to price. Eventually during this cycle you will come back to price and realize that it tells you all you need to know. The problem, and the challenge in trading then, you ask? You must be willing to objectively and humbly accept what the chart/market tells you, and do NOT trade what you WANT the market to tell you. That's it.

Again, go get a copy of "Trading In the Zone" by Mark Douglas online right now, and never look back.
  • #20
  • Aug 1, 2007 11:54am Aug 1, 2007 11:54am
Quoting JoshDance
but in my short 5 months of forex trading, I've averaged about 10 hours per day studying charts, indicators, learning WHY things work the way they do, and pissing off my girlfriend so many times that I lost count about 4 months ago.
Josh,

My gf of 18 months still doesn't understand why I stare at candlesticks and lines in my free time! To her they are odd looking, non-sensical shapes.

You're not alone buddy!
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