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  • #21
  • Dec 21, 2007 3:47pm Dec 21, 2007 3:47pm
Quoting hanover
1. How does a trader (objectively) measure his edge?

2. Given that any trader can have a fortuitous run for several weeks, and possibly even several months, how many trades does a trader need to have behind him before he can be sure that his method (and implementation) will work profitably, no matter what conditions (price behavior) the market throws at him? Given the near random nature of price movement, can he really ever be sure?

I hope my questions aren't too off-topic. I don't want to hijack your thread. Perhaps you were going to discuss similar issues in your upcoming articles?


A trader measures his edge simply by staying in the game. This is assuming at this point that the trader is or at least thinks of himself as a profitable career trader. At that stage he should already have a well developed system, suited to his risk tolerance that he is able to trade. He has already gone through the emotional roller coaster of becoming a successful trader. The best thing he can do after all that is stay in the game. Joining an active forum like this can help him have the pulse of the market and general trend of other traders. It can alert him to timeframes coming where his system might not achieve consistent results.
This ties into question 2, the answer to it being he can't. A successful trader is able to recognize flaws in his system as the market changes and adapt to overcome them. Now I am not talking changing strategies every week. I am saying that a successful trader analyzes losses and wins throughout market periods to determine what needs to change in order to confirm entries in the current market. A rule tweak here or there, can make all the difference depending on the current market. There are markets where you are going to be more
The journey to getting to the point where you start what I have described is the hard one. Once you have the experience to quickly recognize and adapt to current market conditions while still trading around a system you fully understand and are comfortable with. You’re golden.
The basis of a democratic state is liberty. ~ Aristotle
  • #22
  • Dec 21, 2007 4:01pm Dec 21, 2007 4:01pm
Quoting hanover
FXAnalytics, Magnificent post! Many thanks for sharing. (Every post that says something like "attaining consistent profit is difficult" makes me feel a little less stupid, that after 6 years, I haven't been able to achieve it).

There are AA-security-rated banks offering investments with a greater return than 9.32%. Given that this income is completely passive, it begs the question: why spend countless hours analyzing markets, then waiting for the perfect setup to occur, and then sweating blood as your watch your position initially move against you?...... all in the hope that you're good enough, or at least will be one day, to (significantly) beat an industry average. I can only assume that people trade because they enjoy the challenge, or the adrenalin rush, rather than for profit.

I have a couple of questions.....

It seems clear to me that, to be a successful trader, one must have a provable "edge", one that's capable of profiting in the foreseeable future, and beyond that, indefinitely. (If we can't say "indefinitely" with any certainty, then that suggests that the method could break down at some point). If a trader doesn't have a provable edge, then all gains and losses are necessarily fortuitous.

1. How does a trader (objectively) measure his edge?

2. Given that any trader can have a fortuitous run for several weeks, and possibly even several months, how many trades does a trader need to have behind him before he can be sure that his method (and implementation) will work profitably, no matter what conditions (price behavior) the market throws at him? Given the near random nature of price movement, can he really ever be sure?

I hope my questions aren't too off-topic. I don't want to hijack your thread. Perhaps you were going to discuss similar issues in your upcoming articles?

Thanks again for your contribution.

David
Good questions and not at all off-topic; this is the type of discussion we need to engage in. Why bother with the blood sweat and tears of a 10% return? A lot of it will have to do with goals: In a perfect world, knowledgeable traders would prefer three asset classes, with very low correlation, that all return 10% as opposed to one. This helps smooth the equity curve in the returns (reduces portfolio volatility).

This is also true of model types. If within your three asset classes you can also diversify model types, trend and regressive as opposed to just one or the other, you will also reduce volatility to another degree.

How does a trader objectively measure his edge? The quick and dirty is going to be comparing returns and volatility via something like the Sharpe ratio. Large portfolios go through more rigorous measurement, but for our sake a good return with a good Sharpe is a good first step. Right now the Currency CTA’s are putting out about 10% a year with a Sharpe just above 0.40 (the higher the Sharpe the better). If you have generated returns that are say 13 or 14% with a Sharpe of 0.80 you’re doing considerably better and it makes sense to continue doing what you’re doing.

You answered your own question in number two… We can never be certain that what we’re doing is going to work going forward and there is never a specific number of trades that will ever confirm it. My experience has been that nothing will work forever and with each model or each variant there is a window of opportunity where it will be efficient. It may be six months, it may be six years, but eventually the edge will soften and so will the returns. This is part of the reason the dream of making a few trades a day and living a life of excess is not realistic. To have any hope of being able to trade for an extended length of time (think ten years or more) you have to constantly be researching and working to improve and adapt. The market is not idle, and it won’t allow its participants to be either.

The great thing about trading is, if you do it right and end up with the right clients while your model/approach is efficient, you can make enough money to retire on when the model falls off. Five good years in this business can make all the difference in your life if you are financially careful during and after the fact.
Trade Small. Be Patient. Learn to Survive.
  • #23
  • Dec 21, 2007 4:06pm Dec 21, 2007 4:06pm
Quoting Beartrade
An absolutely amazing job FX. With your permission, i think i'll make it mandatory reading for all of my new hires. In a manner, u just took a chainsaw to all of the hype out there. Retail forex has some marketing wizards to be certain... Thankfully I'm institutional. :-P

Keep up the good work
Thanks a lot for the suuport! If you think this is an appropriate read for the new hires, by all means let them have at it...
Trade Small. Be Patient. Learn to Survive.
  • #24
  • Dec 21, 2007 4:45pm Dec 21, 2007 4:45pm
While measuring your performance and setting goals using benchmarks like the once on Barklay has certain benefits that may not be entirely appropriate for most traders, especially the small traders. It is not because a the goals of a small trader are different than those of a money manager but because their situations are entirely different. Because of the size the money managers trade they are confronted with certain variables that a small trader is not. If a substantial size is being traded than you end up moving the price against you on both entry and exit. This is not an issue for a small trader. A money manager has to take this into account and trade accordingly. This limits how much they can trade and how/when they enter the market. Money managers generally are not looking for exceptional returns but rather consistency and a smooth equity curve. That is being archived by diversifying the risk among less correlated assets. While diversification is great for risk control and a smooth equity curve it once again limits the potential returns. Given this (and other) differences between the realities of the two groups of traders they can have different goals.
I am not saying that just because you are a small trader it should be possible for you to make 1000% a year or that you should set such goals for yourself. Every trader should have a realistic understanding of the market and of what the possible returns may be given their situation (trading system, available time, experience etc.) One should not set goals based on what they want/need. The market does not care about what anyone wants or needs. There is more i could add to the subject of setting goals (dangers and benefits) but i have to go.

Thank you FFanalytics for a great thread!
Stubbornly persistent
  • #25
  • Dec 21, 2007 4:56pm Dec 21, 2007 4:56pm
Quoting FXAnalytics
Thanks a lot for the support! If you think this is an appropriate read for the new hires, by all means let them have at it...
This reminds me of something that I employed while governing 6 Traders before/during the RFX debacle. We employed numerous models, some of which were Day Trading. Each Trader's "Desk Limit" on DayTrading was Dependant on their accuracy. For the "new guy" his desk limit was $300.00.

Lose it and your done Trading for the day. Time to do more Market/Chart analysis.

Gain it and your done for the day. Time to go home and enjoy the fruit.

This, of course, was an attempt at keeping the Psych of Trading in check.

Q. I'm wondering what your thoughts on an FX New Guy employing any variation of this method would be?

ho ho ho... Santa wears a Kilt. Merry Christ's mass.
  • #26
  • Dec 22, 2007 5:25am Dec 22, 2007 5:25am
FXAnalytics, this thread is very useful for new "would be" traders. I remember myself when I started, years ago, throwing out with anger one of my first automated trading system that showed to be profitable at least on 8 years of 1M bars backtest data because it would produce ONLY a 20% capital return per month, while I was looking for AT LEAST 400% return every month. Yes, now I laugh when I remember but imagine my delusion at the time!

So when you are new to this game it is really important to have some reading like this thread, even because there are very few trading books that talk about what could be for a new trader a reasonable return per year in terms of real money.

But I also have to add that while still useful this thread is also a little bit deceitful and this is for two reasons that I think it's very important to put at the attention of new "would be" traders.

And these are:

1) the most realistic, statistically more frequent, and well know to every experienced trader, expectancy on capital return in your first years (read well the last letter of the last word) is not that you will have a 300% return on your capital per year. It's not a 30% return, a 5% return or a 0.5% return. It's a 100% LOSS of your capital!
If it's more than one year that you are trading live and you have not lost one or more of your entire account it means you have already a very, very good and rare talent in trading, because it means you have the innate ability to stop or pause when things go wrong!

2) the more you'll proceed in you trading career the more you'll understand that such disquisitions as "how much money can I make on average per year" are just worthless speculations. It's just that there is no reliable way to know it. You simply cannot know. If you really need to have these kind of certainties then changes are you are not suited to be a trader.
Yes, of course you will have your systems with defined expectancy, your money management strategies, you portfolio diversifications, and so on. But all of this will always be related to what you will probably do THIS very year, with your current tools, knowledge, ideas, and experiences. All of this will never say anything at all about your career as a whole. Trading is not like being a post office clerk where you already know for sure what will be your salary for almost the rest of your life. Trading is more like being a sort of writer, you will never know when and if that "Harry Potter idea" will land to your mind and make you write a book that will put hundreds of millions of dollars in your pockets in a few years. As a trader you will never know neither WHEN neither IF AT ALL you will conceive that particular trading system that will land you to the millions heaven.
And yes, statistics speak very clear, only few get them to that heaven. Most successful traders will just reach the point they will be able to make a decent living out of trading, and that's it. But it is not any different from a lot of other jobs where personal performance is so fundamental. Not every successful writer is J.K. Rowling, most of them are just making a decent living out of their writings.
But the most important thing to understand is that even to just reach the point where you are able to make a decent living out of trading is really VERY VERY VERY HARD! As it is hard to have your first book published if you want to be a writer, and to have it to sell at least enough to pay for the time you need to write another one. As it is hard to get hired in a decent sporting club if you want to be a football player, and so on....
Trading is just like those jobs, you will never know when, if and why the success will come.
Not only that. When you finally reach the point, you will never know for sure how much time you will stay there. When do you know if a writer has done it as a writer? Oh, yes, we all know Stephen King has done it. For sure. But how many years after he did it we recognized it and, most important, himself recognized it? When do you know for sure you will do it always right from now on and forever because now you are a pro trader?
It is a fact supported by statistical evidence that the most airplane accidents that are caused by human factors are caused by veteran pilots, not by young or new ones.
You know, you will maybe become a good trader, you will learn how not to bet your house on a single trade, how to well manage you money and all the rest. But who will ever guarantee you that instead some of those stupid errors you made in the beginning of your career is not exactly what you will do again in one of your future days, when you will be the most veteran you could imagine? There is no guarantee at all in this job! Disquisition about what will be your future is non-sense.
In trading, like in writing, in football playing..., there is no future, there is only NOW. So there is only one and one only thing that really matters in trading: that you give all of yourself right here, right now, until you succeed. Thinking about future is a waste of time. Thinking what you have to do right now in order to succeed and doing it immediately is the only way to go.
You know, Christmas Holidays are coming. Two friends of mine are going to spend it in New York, two others are going to have two weeks of skiing on the Alps. I've also heard that some other friends of mine have decided they'll have this Christmas all nature and sea, and are going to Mauritius.
I'm also preparing myself for these holidays.
I think I've discovered few days ago an algorithm that potentially could greatly reduce the effects of curve-fitting during the optimization of trading systems. I'm going to spend these holidays perfecting and testing this software. Well, to say the truth, I can clearly remember some New Year's Eve ago. It was about 6 in the morning of the first day of the year and I made a big jump from my chair in front of my PC when I finally succeeded, after long, hard days of totally unfruitful attempts, to write a working code for the rprop algorithm that weeks later landed me to be able to create one of my first profitable trading system consisting of a committee of 40 Cascade-Correlated neural networks.
I thing succeeding in trading is like this. You have to give all of yourself right here, right now, until you succeed, and without any guarantee that you will ever reach the success or will maintain it if and when you reached it. This game is like this, you like it or not.
Spending time thinking how much money could be potentially earned with this business is a waste of time. It's obvious that with all of this working I'm aiming to double my capital every few seconds, it's obvious that I'm working exactly to get there. But to be realistic and to talk about some real numbers you cannot embrace the discussion on the abstract concept of trading as a whole, as you would do for a business plan for a new startup company. You have to go deep inside the things you are doing right now: is this system good? What is its max drawdown? Its profit factor? How many signals does it fire per month? Will I trade live this one or that other system, or both?
It's not what will be next 20 or 2 years from now, it's right here, right now, even when it's Christmas or some other holidays.

Well... what? What? Did you say "CRAZY!"?
Then keep your hands off the markets, trading is not for you.
.Ubeee.
  • #27
  • Dec 22, 2007 9:34am Dec 22, 2007 9:34am
Ubee...

For starters I appreciate your input here and I encourage everyone to add their own thoughts. Trading like every other topic in the world often gets boiled down to two sides... Think of it as Republican vs Democrat, Catholic vs Protestant etc. In the investment world there are those that believe in the Random Walk and Those that don't.

On all account in every discussing you will find some truth to each argument and a lot of grey area in between.

I obviously have no control over what people post, but I would again encourage anyone who is doing so to make their argument with facts; pull some kind of numbers and research, even if its sketchy, and present them with your opinions. I want this thread to be as void of all kinds of "This is how it really is" opinions, that more often then not are completely baseles.

I know we're not going to set any standard here by this work; it will never be scientifically or statisticaly significant, but I have to believe it will be better than the average thread if we support our arguments with some actual elbow grease. Enough already of the "belief" based threds... There are enough jelly-fish in the FX Ocean, can't we have just one thing with a Back-bone...

In response to the Ubee post there is a lot of that, that I disagree with, but as there are no actual numbers to support the remarks there is little point in engaging in a detailed debate (which is a nice way of saying, I'm not going to do your work for you)... Also, I really dont want this to be about members arguing over a topic. It might makes sense for someone to initiate a "Zero Expectancy" thread and then present in detail the rational and supporting research.

On these points I will quickly comment...

Deciet is a pretty negative work and typically indicates that there is intent to trick... I'm not sure why you would kick off your response in that tone, not sure I care for it though. It definatelys sets my tone going forward...

I've never agreed fully with the Zero Expectancy argument although there are points of it that are valid. If we argue Random Walk, we have to realize that there are only two directions we can walk, up the steps and down the steps, and that immediately gives me some level of expectation.

If I'm not building a model (and likely some kind of business around it) with some level of expectancy, I can't imaging why I would go through all the hoops to do it. Certainly not because I "Hope" to make money; to me that's foolish. If that were the case I'd spend the next ten years in Law school and position myself at a greater level of expectation.

I'm certain, every mutual fund manager and every hedge fund manager who engages in any kind of long or short strategy has some expectation that they are going to make money. They may not, and we know by looking at the numbers very few do, but what would be the point of trying if you didn't believe that you would succeed on some level. It seems a conflict to me. I trade to make moey but I expect that I won't... That would never ever motivate me to do it. I personally trade because I expect to make a reasonable risk adjusted return. AND, if I've done my homework correctly, it will be a model that not only makes money but also fits into a funds needs, which will allow me to make more money than I could trading on my own...

Your post would have meant a lot more to me if it had contained some level of documentation and research to back it up.

I'm also confused by the fact that you would put resources into NN technology and optimization (which IS curve fitting) with a Zero expectation that it will produce results. People who are efficient at programming AI can make a good deal of money in the business and government industries. Why would you forfiet certainty for Zero Expectancy.

In addition to this, all AI is tested and fine tuned on large amounts of historical data, its how the fit is created... At its very heart we are expecting that the near term price action is going to mimic our data set to some degree... and that means we expect a certain amount of excess returns to be generated; certainly something above the cost and time (or lost wages) of the development itself.

You're entire point is lost because of the methodology you use...

If you said, I srictly trade price action it would almost make sense, but in this context, to me it doesn't. Even that though begins to pale, becaus any trade that is taken for a "reason" has an expected outcom, even if its wrong. And if it has an expected outcom, then their is an expectation of short term return... which over time builds into long term expectations of return. AND if its not based on some type of historical precedent, than why not trade 400:1 leveraged with a 100 pip stop everytime. If there is no expectancy of gain, there there is also no expectancy of loss.

Disquisition is definately a ten dollar word; I had to google it...
Trade Small. Be Patient. Learn to Survive.
  • #28
  • Dec 22, 2007 12:09pm Dec 22, 2007 12:09pm
Quoting FXAnalytics
I trade to make moey but I expect that I won't...
I trade to make money and I expect (not hope) to make A LOT of them. It's just that there is nothing in this world that can give me any guarantee that I will succeed. Now thinking it differently, as I see it (and this is just my opinion), that is really fooling yourself, and this is why most of mutual and hedge funds usually don't do the money they expect. They are fooling themselves. They write for their clients (because the law enforces them to do so) that "there is no guarantee that past performances... and bla, bla, bla" but they are the first to not really understand how true those statements are.
Now, am I saying that they'd better stop making models, forecasts and so on? Of course no! Absolutely no! But we were not talking about funds but expectancy of "would be" traders. As I see it (and, again, this is just my opinion), it is not a Zero Expectancy for new traders, and not even millions or billions. It is just something that you cannot forecast at the beginning of your trading career. You can start to do models, forecasts and so on only after you have reached the point where you are able to create trading plans that fits your style (which is something that you also have to discover), and that is proved to be consistently profitable at least on some past data. Doing this forecast before reaching that point is non-sense. It's something that has nothing to do with reality. This is why I made a parallel with writing. You cannot know at the beginning of your writer career if your novel will turn out to be a "Harry Potter" or a b serie splatter horror that will be read at best by 27 people! Making forecasts about these things is foolish. Generalizing them is even worse. Ok, on average successful traders are making 9.32% per year. But an average number of copies sold of a book is 11,800 (real facts? http://answers.google.com/answers/threadview?id=603348 ). How can I make a reliable forecast of my expectancy when an average of sold books includes those books that sell 200 millions copies with those that sell 27? How can this relate to my book? And trading is the same.
I personally know a trader that make about 200 dollars a day, every single day, since 8 years. And I also personally know another one that makes about 5000 dollars a day, since about the same years. They will both end in some statistic average but one is rich, the other is just living. You know, statistic is such a science that if I ate a chicken while you where hungrily looking at me, statistic will say that we ate half chicken per person.

Quoting FXAnalytics
I'm also confused by the fact that you would put resources into NN technology and optimization (which IS curve fitting) with a Zero expectation that it will produce results. People who are efficient at programming AI can make a good deal of money in the business and government industries. Why would you forfiet certainty for Zero Expectancy.
I've already made 3 successful companies in my life the first of which was exactly about selling some software (but not AI related) to government industries, and the last of which I sold at the peak of the dot com bubble making a dream deal. Yes, I could try to follow this path again. I made it three times with success, why not replay? And maybe you are right, it would be more intelligent to just do it again and stop. But I'm stubborn, when I find something that I like but that I'm not able to master, I have to learn how to master it. It's my nature, I can't help it. On the other side, if I was not like this, I would never had success with my 3 companies in the past. Those were not easy journeys too.

Quoting FXAnalytics
Disquisition is definately a ten dollar word; I had to google it...
I'm really sorry for this. This happens because English is not my native language and when I see a word that sounds familiar to me because it's similar to what it is in my language I mistakenly think that for sure it's also a common English word. Sorry.
.Ubeee.
  • #29
  • Dec 23, 2007 4:32am Dec 23, 2007 4:32am
I think 100 to 100K in a year can be possible with good risk management.

Rite now i am trying to reach my goal of 10K from 2.5k
Let see how long does it takes.

Balance now around 2.9k after 2 weeks live trading.
  • #30
  • Dec 23, 2007 2:31pm Dec 23, 2007 2:31pm
Well... I'm sure if you've read the thread up to this point, you know I'm standing on the other side of that argument. I really don't think its veyr likely to happen.

I don't want to sway you from what you "believe"; but I think the phrase "good risk management" pretty much precludes this from happening. That's really what this thread is about.

Like most things in life we have to experience it for ourselves to really own the knowledge. As you march down that road, there will be alot of things that (hopefully) become very clear as you trade.

If you have questions along the way, don't hesitate to ask...

On a different note: Updates to the thread will probably run about one a week or so. I want to develop each section as well as I can and really try to stimulate a good conversation on the topic. (Again if you want to "converse" bring numbers not beliefs - you loose by default if you don't")

My primary focus right now is my model and getting myself back to trading so I can furhter my own convesations with potential funders. (that also means that right now I need to be working )

At any rate; Happy Holidays everyone; for those of you that celebrate it, Merry Christmas... I've always been a sucker of the holidays and am really looking forward to spending some quality time with my family this week.

I'll be posting soon, I've got about three pages of rough draft to clean up and we will extend the thought process here a little further!!!

Cheers,

John
Trade Small. Be Patient. Learn to Survive.
  • #31
  • Dec 23, 2007 2:35pm Dec 23, 2007 2:35pm
Just for the record and to be really clear... I really appreciate all points of view here, so input like Ubeee's is welcomed.

Again, I prefer if someone is going to throw something out there that they back it up with some research and facts as I think that will help keep the conversation honest and avoid the mud slinging that occures when everyone is just tossing what they "believe" around. That will just run you into a circle because you never have to defend what you believe; you're just taking it on faith...

Arguments that have some back-bone and support will help us present a much more realistic direction to the thread.

Quoting ubeee
I trade to make money and I expect (not hope) to make A LOT of them. It's just that there is nothing in this world that can give me any guarantee that I will succeed. Now thinking it differently, as I see it (and this is just my opinion), that is really fooling yourself, and this is why most of mutual and hedge funds usually don't do the money they expect. They are fooling themselves. They write for their clients (because the law enforces them to do so) that "there is no guarantee that past performances... and bla, bla, bla" but they are the first to not really understand how true those statements are.
Now, am I saying that they'd better stop making models, forecasts and so on? Of course no! Absolutely no! But we were not talking about funds but expectancy of "would be" traders. As I see it (and, again, this is just my opinion), it is not a Zero Expectancy for new traders, and not even millions or billions. It is just something that you cannot forecast at the beginning of your trading career. You can start to do models, forecasts and so on only after you have reached the point where you are able to create trading plans that fits your style (which is something that you also have to discover), and that is proved to be consistently profitable at least on some past data. Doing this forecast before reaching that point is non-sense. It's something that has nothing to do with reality. This is why I made a parallel with writing. You cannot know at the beginning of your writer career if your novel will turn out to be a "Harry Potter" or a b serie splatter horror that will be read at best by 27 people! Making forecasts about these things is foolish. Generalizing them is even worse. Ok, on average successful traders are making 9.32% per year. But an average number of copies sold of a book is 11,800 (real facts? http://answers.google.com/answers/threadview?id=603348 ). How can I make a reliable forecast of my expectancy when an average of sold books includes those books that sell 200 millions copies with those that sell 27? How can this relate to my book? And trading is the same.
I personally know a trader that make about 200 dollars a day, every single day, since 8 years. And I also personally know another one that makes about 5000 dollars a day, since about the same years. They will both end in some statistic average but one is rich, the other is just living. You know, statistic is such a science that if I ate a chicken while you where hungrily looking at me, statistic will say that we ate half chicken per person.



I've already made 3 successful companies in my life the first of which was exactly about selling some software (but not AI related) to government industries, and the last of which I sold at the peak of the dot com bubble making a dream deal. Yes, I could try to follow this path again. I made it three times with success, why not replay? And maybe you are right, it would be more intelligent to just do it again and stop. But I'm stubborn, when I find something that I like but that I'm not able to master, I have to learn how to master it. It's my nature, I can't help it. On the other side, if I was not like this, I would never had success with my 3 companies in the past. Those were not easy journeys too.



I'm really sorry for this. This happens because English is not my native language and when I see a word that sounds familiar to me because it's similar to what it is in my language I mistakenly think that for sure it's also a common English word. Sorry.
Trade Small. Be Patient. Learn to Survive.
  • #32
  • Dec 23, 2007 7:47pm Dec 23, 2007 7:47pm
FXAnalytics,

So what are your thoughts on books like "Market Wizards" and "Millionaire Traders?" There definitely appears to be some traders beating the hell out of 10% a year.
Visit my journal here.
  • #33
  • Dec 23, 2007 11:22pm Dec 23, 2007 11:22pm
I read a copy of market wizards waaaaaaaayyyyyy back; I don't know how many there are but this must have been five years ago... maybe longer. I honestly don't remember much about it; I don't think I was terribly impressed with it becasue it didn't remain on the bookshelf...

I think too many of these books kind of fall into the same glut: they know you won't buy something that say "Market Mediocers"...

Rememeber, we're trying to set resonable expectations going forward, not absolute numbers. If you spend some time at barclays or autmngold it won't take long at all to find professional traders with much better track-records than the average. Some will be exceptionally better... but as is pretty much the case with all things, the better the numbers get, the fewer instances we'll have of them.

You will always find a small group of outliers in all things; traders are the same way. MysticGenie proves that point; that guy knocked it out of the part in a single week... The vast majority of traders will never ever do that. I'm just trying to help set a resonable, grounded expectation.

I'm going to try and find the version I read and see if I can determine how those Wizards are doing today...
Trade Small. Be Patient. Learn to Survive.
  • #34
  • Edited 3:21am Dec 24, 2007 3:05am | Edited 3:21am
Beautiful post.

Ok here is my 2 pips worth.

I have ready many FX forums. I have joined many webinars presented by well known traders. I have listened to amateur traders. I have listened to professional traders. I have read most of the trading systems posted on every single FX website.

But i think the easiest money to be made in forex is to become a mentor or expert advisor/analysis for a FX website. You get a few students and they pay you every month a subscription fee. Seems like a lot of professional traders agree with me as most of them offer a paid mentor program. Why would someone spend an hour coaching an inexperienced trader for $150 per month when he can spend that time making thousands trading the market?

After 2 years of trading i have reached the conclusion that you cannot constantly make money trading the markets. Then i read some of Jesse Livermore's stuff and he confirmed my believe. Jessy said that nobody can beat the market on a constant basis.

So now i am trading as a hobby. I no longer expect to make a living trading the markets because it is impossible for me. At best i break even. I win some money and then give it all back the next month.

I still find it very entertaining that a lot of amateur/ part time traders post the successes on FX forums. Some even believing that they can turn $1000 into $100 000 in a week's time. Or grow their account by 100% per month. If it was that easy nobody would work full time but the the whole world would trade the markets full time.

All i can say is best wishes to all traders. It is a damn hard life. It is not easy money. It is hard earned cash.
  • #35
  • Dec 24, 2007 8:27am Dec 24, 2007 8:27am
i have just one question. If barclays gain in percents is on levareged or unlevareged basis?
  • #36
  • Dec 24, 2007 8:56am Dec 24, 2007 8:56am
Quoting Time
Beautiful post.

Ok here is my 2 pips worth.

I have ready many FX forums. I have joined many webinars presented by well known traders. I have listened to amateur traders. I have listened to professional traders. I have read most of the trading systems posted on every single FX website.

But i think the easiest money to be made in forex is to become a mentor or expert advisor/analysis for a FX website. You get a few students and they pay you every month a subscription fee. Seems like a lot of professional traders agree with me as most of them offer a paid mentor program. Why would someone spend an hour coaching an inexperienced trader for $150 per month when he can spend that time making thousands trading the market?

After 2 years of trading i have reached the conclusion that you cannot constantly make money trading the markets. Then i read some of Jesse Livermore's stuff and he confirmed my believe. Jessy said that nobody can beat the market on a constant basis.

So now i am trading as a hobby. I no longer expect to make a living trading the markets because it is impossible for me. At best i break even. I win some money and then give it all back the next month.

I still find it very entertaining that a lot of amateur/ part time traders post the successes on FX forums. Some even believing that they can turn $1000 into $100 000 in a week's time. Or grow their account by 100% per month. If it was that easy nobody would work full time but the the whole world would trade the markets full time.

All i can say is best wishes to all traders. It is a damn hard life. It is not easy money. It is hard earned cash.
That is one of the most honest assesments of trading you'll ever find; "It is a damn hard life..."

Time also brings up something else I want to touch on: the dreaded Signal Service.

Before I do, a little disclosure is in order…I used to run one. When I officially launched the model into trading, I also launched a signals service for clients who were “traders” and not investors. There were a couple reasons for this. One, I needed to get the company generating revenue as quickly as possible. I had planned on the R&D for the model to take about two years and it ended up taking three. I still had enough money to float the firm for two more years but it typically takes between three and five years to actually raise enough money to keep the company solvent from trading activities.

When I offered up my signal service I structured it into two different payment types. The monthly charge and the “No Charge” if you opened and account through my broker at the time (only one person took advantage of that thankfully).

To my surprise almost everyone paid the monthly fee; what surprised me about this was, I knew few of them had the account funding to actually justify the cost. Let’s take a quick look at how this should work.

First, let’s say this signal service costs $150 a month and this model is an above average performer and generates 15% a year with a max open leverage of 2:1. Given that information we can work backwards to find our break-even point for funding.

0.15/12 = 0.0125 $150/0.0125 = $12,000 To simply return enough profit from an account to cover the cost of the service you would need $12k in minimum funding (again, just to cover the cost). If you wanted to actually make money you would need substantially more. How much more? Glad you asked…

If we look at the cost as a percentage of return, it breaks out like this.

$10k 120%. The cost of the signals service is 120% of the average monthly return of the service… Not good, that means each month you are going into the whole fore the information. Now think about that for a minute… That cost is universal; if you’re trading a $5000 account with a $150 a month charting service, or premium news service or website membership, these impacts also hold true. You got to really be careful of your Trading Overhead and you have to make sure that every penny you put in has a real return associated with it. On with the breakdown…

$20k 60%
$30k 40%
$40k 30%
$50k 24%
$60k 20%
$70k 17%
$80k 15%
$90k 13%
$100k 12%
$110k 11%
$120k 10%
$130k 9%
$140k 9%
$150k 8%

Even at $150k (not the average funding amount – not a by a long shot) the monthly cost would still eat 8% of the monthly profit generated by the “above average” system. That’s a lot. I tried to explain the cost impact to my potential subscribers and really emphasized the need to be properly funded. The typical answer was; I’ll just use more lots… Ugh. Then I’d have to go back and explain how their accounts were going to react to that. “If trading at 2:1 Leverage this models worst draw down is 15% at 4:1 it will be 30% at 6:1 it will be 45% and that’s if your timing is good; a models worst draw down isn’t necessarily a client’s worst drawdown. If a client comes in at the peak of efficiency (how many of you have ever considered joining a signal service or managed account program etc when its doing “good”) they can suffer more severe drawdown’s (Peak to Valley Draw Down). This can be much greater that the deepest historical drawdown of the model. The next revelation was always, well then we’ll just tighten our stop… Okay, but now you’ll just get stopped out more often and On and on… I learned very quickly is, its tough to be honest in that business and make money, most people don’t listen to what you try to tell them. And rarely will trust what you know over what they believe.

Despite having a lot of detailed information about the model, trade frequency, and expected returns; and the negative impact of trying to tinker with things, I still had people signing up who thought they could tweak the signals to perform better than they did. Even with being profitable through that period, my average monthly turn over rate was nearly 30% in the signal service.

On to the point… Signal Services are typically a terrible waste of time and money, especially for accounts under $100k. If you dig through the pages of FXReview.com you will literally find hundreds and hundreds of threads dedicated to “The next great thing” that never panned out. People used to send me email that said, John, I really like what you’re doing, but I think I can get better returns over “here”… And then they would loose their money.

The reality is; if someone is a good trader, they stand to make substantially more money as a professional trader than selling signals; at the peek I only made about $2k a month with the service and the customer service demands were extremely high and were on top of my other trading and research work. It was helping to reduce the burn rate of fixed capital but it honestly required more hand holding than it was financially worth.

Before you ever use a signals service… demand to see an actual trade statement from the provider… I did and it never bothered me to do so. Also make sure you absolutely understand how you’re funding level is going to impact the returns vs costs etc.

Chances are very, very high, this person is not half the trader you are right now and it will just be a waste of your time and money.
Trade Small. Be Patient. Learn to Survive.
  • #37
  • Dec 24, 2007 9:06am Dec 24, 2007 9:06am
Quoting mijamoto
i have just one question. If barclays gain in percents is on levareged or unlevareged basis?
Great question... it varies with the model. I was invited to report my model to Barclays but declined because we were in the middle of the Refco thing and I didn't want to stop reporting once we started... My model typically ran at 2:1... others will run at 1:1 or 3:1 etc... You don't find many professional traders (with long track records) trading much higher than that. The use of excess leverage in a model will typically show up in the Sharpe ratio... you'll end up with good returns for a period but will see relatively low Sharpe showing its likely do to volatility and not efficiency.

Despite what a lot of traders try to get you to believe, mainting a Sharpe above one for extended periods of time is very, very difficult. There are guys out there running around saying they have models with 2.0 Sharpe... BS... its typically because the reporting period is too short or its based on back testing that has been optimized to the period and not real trading.

If you really want to dig into what the CTA's are doing also look at AutumnGold; they actually post the most recent dislosure docs on the site and you can read through them and see what kind of risk profile the different firms are using. It's also an educational experience in and of itself...

I think you're going to find that on the average the succesful models (that have been around for four five years) are probably averaging about 2:1...
Trade Small. Be Patient. Learn to Survive.
  • #38
  • Dec 30, 2007 9:18am Dec 30, 2007 9:18am
Quoting FXAnalytics
Welcome to the FF Fly Trap Newb... you've just been caught and you're not allowed to leave until you have actively read and participated in this thread for at least a year!!!
OK FXAnalytics, you have this Newb trapped!

With all that I have read on FX trading in the past year, this is one of the best articles and I hope there will be more to come. I am about 2 demo accounts away from going live.

A little history...
I have been trading demo accounts for about 1 year and have killed more than I can remember. I have read books and forums as often as I can. I have learned a lot about trading and a lot about myself as it relates to trading.

Lessons Learned...
1) Treat every demo account as though as it was really your money.
2) Keep emotions out of the trade. (Hard but can be done)
3) Greed! Set profit and loss limits for the day. If the trade makes more than your profit limit because you let it run its course great, either way you wind up, CLOSE THE SOFTWARE and wait until TOMORROW!!! (Very hard to do and this has killed most of my demo accounts)
4) Never, ever, chase a loosing trade because "you can make it up when it turns around", take your losses and wait until tomorrow. (#1 killer of demo accounts)
5) Back trading analysis, custom EA's and most trading systems will kill your account in the current economic environment. Find a "system" that will work for you and your schedule you can trade on, and demo it until it is rock solid and you can get and live with the results.
6) Most everything in my lessons learned I have read somewhere, but until you "learned it" for yourself, you might know it but will you apply it?

The Plan...
A few more demo accounts to prove out what I think will work for me and go live. $300 to $100k in 1 year? Maybe. More than $100K, who knows. Can I keep the account open for a year without adding more to it? I sure as hell hope so! I will update this thread as results come in for at least a year.

Happy New Years.
  • #39
  • Jan 4, 2008 10:46pm Jan 4, 2008 10:46pm
possible to turn $100 to 10k (need micro account first) min account will not allowed you to do trade.

you have to be sure every trade. just if you make 5 pip a trade 10 trades a day that will be $150 and using money to make more money.

if you go to talk gold dot com. under forex trading. you can find using $500 to a million.
  • #40
  • Jan 7, 2008 9:37pm Jan 7, 2008 9:37pm
Update - 1/7/2008
My trading system is in place and working so the next step is to find a broker.

After much searching and research (Thanks to all on FF for their comments in the Broker Discussion forum) I have settled on my broker, and opened a demo account with them. Different platform than I was using to work out my system, but the system still works. T-28 days to live.
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