The reason why 95% of new traders consistantly lose money

Quoting euclid

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Interesting fantasy world you live in. Here's what happens in reality.
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Tades entered at A,B,C are closed for small loss at D.

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Quoting pearsonfx

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Yes, Here is a graph of what I mean by effective hedging. This is a graph of the 4 hour, Eur/Jpy charts around mid to late January of this year.
Please note that in this chart I am not posting any indicators because the indicators and strategy are up to the trader. THIS IS JUST A HYPOTHETICAL EXAMPLE.

Point A - Your indicators suggest a BUY trade. You Buy 1 lot.


Point B - Your indicators suggest a BUY trade. You Buy 1 lot.


Point C - Your indicators suggest a BUY trade. You Buy 1 lot.


Point D - Your indicators suggest a SELL trade. You Sell 3 lots.
- At this point you are approximately 200 pips in drawdown from your original three trades A, B, and C. So at Point D, we enter a Short trade to HEDGE our first three positions. So instead of using 1 lot, we use 3 lots.


Point E - Your indicators suggest a BUY trade. No Trade is entered.
- You do not place an order here, because you are expecting your original trades, A, B, C, to come into profit now. However at this point we close out our original hedge trade (Point D) with 900 pips of profit (3 lots multiplied by 300 pips = 900 pips). Here you have 900 pips added to your account balance, but you have drawdown of 1100 pips, so overall you are still 200 pips negative, hence your account equity remains unchanged.


Point F - Your indicators suggest a SELL trade, You Sell 3 lots.
- Once again we see another drop coming, so we hedge our first 3 positions (A, B, C) with a 3 lot short, again. This time in terms of drawdown of our first 3 positions, ABC, we are now about at breakeven, but we have made 900 pips from our first hedge trade. Now Account Balance is +900, and your account equity is also +900. and since we are hedging again...our account equity now freezes at +900.


Point G - Your indicators suggest a BUY trade, No Trade is entered.
- This time we close our second hedge trade for another 900 pip gain. Remember 900 is derived from 300 pips x 3 lots. So now our account balance is +1800 pips, but our account equity is +900, because from our original three trades, ABC, we have a 900 pip drawdown.


Point H - Your indicators suggest a SELL trade, You Sell 3 lots.
- Once again your indicators show a temporary sell off beginning, a possible retrace. You again hedge your original 3 trades(A, B, C) with a 3 lot short. In terms of drawdown for ABC, we are looking at about 200 pips down.
This time, we freeze our account equity at +1600 pips. our account balance shows +1800, but we have 200 pips of drawdown on out 3 longs.


Point I - Your indicators suggest a BUY trade, No Trade is entered.
- Once again we close our hedge trade with a 300 pip profit, (100 pips times 3 lots = 300 pips). Now our account balance is at +2100 pips, and our account equity is still frozen at +1600 pips.


Point J - Your indicators suggest a SELL trade, Trades A, B, C are now closed.
-Point J we see a SELL trade forming, all 3 of our original trades are now in profit and we close all three for a profit of 650 pips. But we cannot forget about our hedge trades, if we add them into the equation we came out with 900 + 900 +300 +650 = 2750 pips total for this trade.

I Hope this helps you better understand what I mean.

Please note that if you did not want to wait for Points ABC to come into profit....at Point F you could have closed trades ABC and still have walked away with a 900 pip gain. At Point F, ABC were about break even, but you had 900 pips from your first hedge trade.

Zack

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Quoting Linus78

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The times where my stops have been hit I was glad I had them. Could have lost 50-100 Pips more instead of 25. Well and if they get hit. This means I was just wrong with my analysis.

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Quoting FXTitan

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trying to scalp or using any other short term strategy that doesn't work in the long run and under various market conditions. Using longer time frames for this investment strategy is definitely better! It is a fact that when you close your account, using my strategy, in the end, that the negative open positions will then be closed as well and you will then book your first real losses.

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Quoting FXTitan

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This is not a big deal if your available equity has grown much larger than your opening balance when you close your account.

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Quoting FXTitan

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by a minimum of 10% a week and this current week on the gbp/usd is up 23% so far.

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Quoting FXTitan

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scenario, you keep booking profits on the way down and you can just wait for the market to turn around to go back up again and resume the weekly bull trend.

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Quoting keramikus

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Excellent discussion all. I have questions/thoughts though, please give me feedback.

I will hook to PEARSONFX graphed explanation with below attached "modified" scenario.

If prices resumes down from A,B,C, hedge scenario dictates them to stay open, while putting Short orders at further price reversal and profiting from them. Does this perhaps include Long orders up to a predefined percentage of equity for Long positions? How long would one wait before closing ABC (if at all) - more than, say, a year long?

To hook furter to FXTITAN theory, above mentioned loss would be offset, if trader would endure ABC trades (ignore them while open), and would with next opened trades increase equity to further fuel larger positions. I see potential here.

And here comes BUT.

BUT, lets hypotetically say that price goes down 5000 pips (accumulating perhaps also negative swap), trader increases equity and thus positions and then suddenly price turns and a new (larger) Short X position is left open/unprofitable (but then again this perhaps gives positivewap). Price proceeds 2000 pips up and is between positions ABC and X. Now what? Stay put and wait?

Regardless of this scenario I see great potential in this to supplement a proven trading system, but as I understand it, one must be very careful with exposure/position sizing as well as timing of hedges.

Please, fire your thoughts/constructive criticism, Im eager to resolve correct hedge timing and get fresh ideas. If anyone can direct me to this timing issue, Im all ears (or eyes?).

regards

k.

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Quoting PearsonFX

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Please note that if you did not want to wait for Points ABC to come into profit....at Point F you could have closed trades ABC and still have walked away with a 900 pip gain. At Point F, ABC were about break even, but you had 900 pips from your first hedge trade.

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Quoting Daisygirl

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You're not reading the chart and instructions properly, Euclid...

A, B, C, trades are NOT closed at a loss. This strategy NEVER closes a trade if it's in a loss. Any trade that is closed will only ever be closed when it is in profit.

Read PearsonFX's message again and you will see that anything in green was a buy... and he indicates where they were closed for a profit. Anything in the darker red colour was a short and he indicates where he closed those trades for a profit.

No one knows where the market will go, but the market does range more often than it trends and this strategy is taking advantage of that fact.

regards
Daisygirl

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Quoting apfx

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http://traderfeed.blogspot.com/2008/01/what-makes-expert-three-surprising.html

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Quoting FXTitan

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hi

it's good to hear you are feeling more positive about your trading.

years ago, i too, did the MTI courses, beginner and advanced. i was so very excited about it! i thought now i will be able to retire young and rich. jared martinez was my forex messiah! the man to take me to dollar heaven! Ha! what shattered expectations!

you see, fibs paint a great picture for you, especially in hindsight. the problem is that there are always bigger swings working out in smaller swings working out in yet smaller swings. so, which swing will work out for you? at least now you can keep your positions open and you can trade all the fib swings you see, but without stops and with fib extension profit targets.

i have also made some money with fibs that i just lost again and my account just stayed the same while making some good spread income for the fxcm/ mti cabal. fib traders are also just guessing which way to trade and if they are right, they will tell you that fibs and cruise missiles have similar accuracies...

the secret to hedging is keeping gearing as low as possible. i try to also have more open trades in the direction of the weekly trend. imagine you keep buying dips on the 4hr in the direction of the weekly trend? you just accumulate positive trades that you can relatively predict will be able to take full advantage of a weekly cycle. you can even enter 2 lots, say, long at the same price, one lot with a smaller profit target and the other lot stays open until you exit at the weekly turning point.

just a thought

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Quoting cockneysean

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I've just started and before reading this thread, this is the path that I had devised for myself. I believe you are definitely correct, as it has been working for me so far. I started with 50,000 margin 1 1/2 weeks ago I now have a balance of 106,000. This is a practice account with fxcm, I am going to keep practicing till the end of the year then invest 10,000 GBP into my account to start real trading. Do you think that this length of practice will benefit me in the long run?

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Quoting FXTitan

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hi

i just trade gbp/usd. i personally like to stick to one pair as it narrows my focus and i 'get a feel' for its behaviour. it doesn't mean you have to do the same. if you can identify a few pairs that, ideally, are not all traded against usd, which is better, then i don't see a problem. personally i just find that if you have 10-20 open positions on one pair, it will be difficult managing 40-80 open positions on four pairs, for example.

to me that is just complicating an already complicated market!

if you use 1% gearing/ risk per trade and you get a signal on four pairs, then you have to split that 1% into four {4 x 0.25%} to not overgear your account.

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Quoting Bemac

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Urrrgghhhh...! ! !
Why do all the folks on here keep recommending to New Traders to "Learn the Platform via Demo" {Entry, Limit, Stop, Charting} and Learn How to actually Trade with "Minimal Real Funds at Risk."

Oh... I remember...
"Cause it's The Best Chance you have available to you to "Learn" this stuff @ minimal Cost !"
good luck.

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