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Why Trading Forex is So Difficult - Long Term vs. Short Term

  • #21
  • Aug 20, 2008 3:42pm Aug 20, 2008 3:42pm
Quoting NewstraderFX
There are tons of reasons but I'd like to talk about two that I think cover a lot of ground.

Most traders seem to be very short term "swing" or intra-day traders looking to pick up a few pips and move on. What makes this do difficult is that trying to accurately predict the little 20-30 pip blips and bleeps over and over again on a consistent basis with a long term profit is something I consider to be nearly impossible for the vast majority of traders to do. You'll have some winning and losing streaks but, overall, if you manage to even keep your head barely above water you're probably way ahead of the game.

Most of these very short term traders rely on the technical indicators to set up their trades. Many have "backtested" a system, but I think backtesting is a huge waste of time. To really test a system you need to back your charts up as far as they'll go then slowly move things forward, entering and exiting trades as you go. And if you really want to have a good test, start with $100 and burn it if you lose it. Now do some more testing the same way.

Most trading "systems' are variations of MA crossover systems. Trade "when the little hand is on the 2 and the big hand is on the...". Yes in a long term trend they look OK, but see the above then tell me if they really work. They can't tell you when profits are maxed and they can't keep you out of choppy markets, which is when you'll be giving back all the profits made when you were lucky enough to catch a trend.

Very few traders are long term and there are some very good reasons why. Longer term trading requires a very good knowledge of fundamentals and economics. It takes time to digest all this and most traders probably find it very boring and difficult to follow but, what really makes this type of trading so difficult is that in order to stay in these trades you'll need to be able to ride out the inevitable ups and downs that occur as a trend progresses. There's much less "action" here because longer term trends don't get set up every day (or even every week). These kinds of trades don't appeal to the gamblers.

All this being said, I really believe the long term trader has a much better chance of being profitable. I'll explain this by setting up a few bets on the NY Yankees.

Everyone knows the Yankees are a very good team. Does that mean they'll win the world series every year? No, but here's my long term bet:

I'm gonna bet that the Yankees are gonna win more games then they'll lose this year. That's it. I only have one bet the whole season. Boring, really. What's worse is that they've lost 7 out of their last 8 and they're below .500 for the year so far. I'm losing pips and I gotta stay in and ride it out. Not easy.

Here's the Yankee bet that's like trading those short term blips and bleeps:

I'm gonna bet the Yankees score in this inning. Hey, they scored in the 2 previous innings. Alex Rodriguez is coming up, the short term MA of runs scored by the Yankees has crossed over the long term MA of runs given up by the opposing pitcher...

There's a lot more fun in betting this way. You're gonna have 8-9 bets/day for 162 days. Plenty of action, as long as your money holds out.

I guess i'm a boring trader. Hope I didn't bore you too much.

If longer term trading interests you and you want some help with fundamental analysis, I have several other threads that will help. Just do a search.
I know this post is from last year, but gotta say I agree with what NTFX has to say.

NTFX - your fundamental knowledge astounds me.
  • #22
  • Aug 20, 2008 4:18pm Aug 20, 2008 4:18pm
The Million dollar question on Long Term trading... "Ultimately, Is this the right direction?" Imagine those holding on to the carry trade on the gbpjpy since last August - disasterous! O.K. - follow the trend and the fundamentals (which should align with the long term trend)... Easier said than done. Let's consider the eurusd. It appears that the fundamentals and the trend would dictate to go short. However, if you're down 400 pips a month from now because of any number of unforseen circumstances (i.e. ECB rate change, further collapse of the U.S. equity market, or some geo-political crisis), are you willing to "ride it out" or "get out"? One may say, if the market goes "x" pips against you, then close out your positions. Again, easier said than done. Even a 400 pip or a 1,000 pip movement can completely reverse itself in a short time period... or maybe it will worsen to a 5,000 pip movement against you. The truth of the matter is that we simply don't know, and sometimes it's worse - we don't know that we don't know. Often we are Fooled by Randomness... long term or short...

Walt
  • #23
  • Aug 20, 2008 4:33pm Aug 20, 2008 4:33pm
Quoting moben
In my opinion forex is only hard if you are trying to predict.

I trade both long and short and the only hard part for me when I started was trying to find a system that fits me.

Once I got that out of the way everything became very simple.

Trading Forex is only Difficult if you are not prepared.

just wanted to echo your comment about predicting. We can't. best we can do it use good MM and use a good system to CALCULATE when a price move is in our favor. This takes skill. Skill takes time.
  • #24
  • Aug 20, 2008 6:45pm Aug 20, 2008 6:45pm
Quoting NewstraderFX
There are tons of reasons but I'd like to talk about two that I think cover a lot of ground.

Most traders seem to be very short term "swing" or intra-day traders looking to pick up a few pips and move on. What makes this do difficult is that trying to accurately predict the little 20-30 pip blips and bleeps over and over again on a consistent basis with a long term profit is something I consider to be nearly impossible for the vast majority of traders to do. You'll have some winning and losing streaks but, overall, if you manage to even keep your head barely above water you're probably way ahead of the game.

Most of these very short term traders rely on the technical indicators to set up their trades. Many have "backtested" a system, but I think backtesting is a huge waste of time. To really test a system you need to back your charts up as far as they'll go then slowly move things forward, entering and exiting trades as you go. And if you really want to have a good test, start with $100 and burn it if you lose it. Now do some more testing the same way.

Most trading "systems' are variations of MA crossover systems. Trade "when the little hand is on the 2 and the big hand is on the...". Yes in a long term trend they look OK, but see the above then tell me if they really work. They can't tell you when profits are maxed and they can't keep you out of choppy markets, which is when you'll be giving back all the profits made when you were lucky enough to catch a trend.

Very few traders are long term and there are some very good reasons why. Longer term trading requires a very good knowledge of fundamentals and economics. It takes time to digest all this and most traders probably find it very boring and difficult to follow but, what really makes this type of trading so difficult is that in order to stay in these trades you'll need to be able to ride out the inevitable ups and downs that occur as a trend progresses. There's much less "action" here because longer term trends don't get set up every day (or even every week). These kinds of trades don't appeal to the gamblers.

All this being said, I really believe the long term trader has a much better chance of being profitable. I'll explain this by setting up a few bets on the NY Yankees.

Everyone knows the Yankees are a very good team. Does that mean they'll win the world series every year? No, but here's my long term bet:

I'm gonna bet that the Yankees are gonna win more games then they'll lose this year. That's it. I only have one bet the whole season. Boring, really. What's worse is that they've lost 7 out of their last 8 and they're below .500 for the year so far. I'm losing pips and I gotta stay in and ride it out. Not easy.

Here's the Yankee bet that's like trading those short term blips and bleeps:

I'm gonna bet the Yankees score in this inning. Hey, they scored in the 2 previous innings. Alex Rodriguez is coming up, the short term MA of runs scored by the Yankees has crossed over the long term MA of runs given up by the opposing pitcher...

There's a lot more fun in betting this way. You're gonna have 8-9 bets/day for 162 days. Plenty of action, as long as your money holds out.

I guess i'm a boring trader. Hope I didn't bore you too much.

If longer term trading interests you and you want some help with fundamental analysis, I have several other threads that will help. Just do a search.
My concern with trading the fundamentals of the global marketplace is one then has to asume that the world is equal geo-politically and consequently, that all asset bases are equal. When the bears for example were rampaging through the Greenback and the Euro was being talked about as a replacement reserve, I simply could not see that happening. The Greenback is the currency of choice for all the world in my opinion and it would take an economic tsunami to dislodge it to the degree that multi-polar competition reigned.

I can hardly see that happening when we have the likes of much of the planet seeking to emulate the American system. Perhaps when we have arrived at the point where a country is able to garner the confidence that the US does in terms of a robust capitalism will there be a likelihood of there being multi-polarity at the fundamental level, but for the time being, I'm not betting on this game given that I'm not entirely sure that its's not fixed. Consequently, for the time being, I try and get to grips with short term price action whilst keeping an eye on fundamentals.
The road to pipland is arduous and fraught with challenge.
  • #25
  • Edited 9:17pm Aug 20, 2008 8:13pm | Edited 9:17pm
Wow I'm glad to have found this thread again. Turns out I was right about the dollar, as it weakened a lot from April 2007. So where to now?

I see the dollar getting stronger, but I don't think now is the right time to get in. What I would say is that the Jackson Hole meeting is much more important than traders realize.

Last year, economist Martin Feldstein presented a paper which said the Fed needed to make a series of fast reductions of at least 100 basis points, and he also alluded to the need for more "lender of last resort" facilities. He also warned about the inflation consequences and the effect on oil, but he thought rate reductions were needed given the potential dangers from the collapsing housing market. He was the only economist talking about rate cuts of this magnitude.

A number of Fed officials have recently been talking about the need to raise rates "sooner rather than later" etc., but I need to hear those words echoed by Bernanke and by Feldstein before I'll get back into long dollar positions again. That doesn't mean that I don't think the dollar will get stronger, just that the timing of when that may begin is not certain yet.

As for the fundamentals, the reason they're hard is because there is always at least 2 sides to every argument. The trick to using fundamentals is to do the same thing that the Fed or any other economist does when weighing the evidence-you need to figure out where the biggest risk is and then address that.

There's a very good reason why the dollar should stay relatively weak now. GDP is being supported by exports and exports are helped when the dollar is weak. The way things look now, the U.S. economy is going to need a strong export market.

There's a very good reason why the dollar should get stronger now-oil. Enough said.

So where is the bigger danger now, or rather, where do the people with their finger on the trigger see the bigger risk?

Part of the answer was given when the Fed stopped lowering interest rates in June. But the answer was really given back in April when Martin Feldstein said the Fed had done enough and should stop easing. That ended the euro's uptrend. So it's obvious the Fed does not want the dollar to weaken further and hasn't now for a while. However, that may not necessarily mean they want a very strong dollar right now either.

Anyway, it's amazing how the J.H. conference always seems to come at the right time. So let's see what policy makers and Dr. Feldstein have to say and we'll take it from there.

So yes, I believe the dollar is going to get a lot stronger. I'm just not sure that's going to happen right now.
  • #26
  • Aug 21, 2008 2:25am Aug 21, 2008 2:25am
maybe we should just go to vegas.
The market can stay irrational, longer than you can stay solvent.
  • #27
  • Aug 21, 2008 1:16pm Aug 21, 2008 1:16pm
You can avoid the difficulty of the FOREX. Just buy low and sell high. Forget about the fundamentals.
  • #28
  • Aug 21, 2008 1:37pm Aug 21, 2008 1:37pm
Quoting 300%mark
You can avoid the difficulty of the FOREX. Just buy low and sell high. Forget about the fundamentals.
Great statement Not only that, you managed to post it in a thread started by a some of the few who knows how FA works here at FF.
Measure twice, cut once
  • #29
  • Aug 21, 2008 8:09pm Aug 21, 2008 8:09pm
The less I trade, the more money I make

Trading is about patience, and most people miss that crucial point
  • #30
  • Aug 21, 2008 8:23pm Aug 21, 2008 8:23pm
finally a thread that makes some sense.
  • #31
  • Aug 21, 2008 9:13pm Aug 21, 2008 9:13pm
Quoting 300%mark
You can avoid the difficulty of the FOREX. Just buy low and sell high. Forget about the fundamentals.
How can we know where is the low and the high?? In an uptrend, a high will always have another high...and in a downtrend, a low will always have another low......please enlighten me...
  • #32
  • Aug 21, 2008 9:34pm Aug 21, 2008 9:34pm
My trading methodology is built up by two part
1) short term (using 15m 5m chart) - trades open close within a day
2) long term (using h4 daily weekly chart) - trades open close within a month

For me, I will more prefer Long term since it is more profitable for me

As I always do some analysis back on my past records, I found that long term trade will gives out a higher posibility of winning rate for me, whereby it also offers a better risk reward ratio when I open the trade.

My Long term methodology is merely built up by price action, candlestick, channel, trendline, fundamental (without indicators), and with a good risk reward ratio ( I only takes trades that provide me wif 1:2 , 1:3 or more). Chances to open Long term trades is not always, but it does generate more profit than the short term. (One short on GJ by the starting of this week give me out +2xx pips floating currently).

As short term, I sticking to methodology and stick hard to it. The reason I stay in short term is because I wanna get a reliable methodology whereby it is consistent.
Explanation :
Using long term trade, there is no indicators, there is a posibility that you're wrong on that trade.

Using short term, by following all the indicators, you're merely repeating the enter and exit trade like a robot + some personal analysis. If it does profitable now, at least it shows that it will profitable in future (surely it needs some modification from time to time). But my short term trades are allowing me a profit of 15-25pips per trade but with a losses of 50-90pips per trades (risk reward ration is not prefarable). Chances of taking trade is high, but this also increases your probability of losing as well.

So, how to decide Long term and short term? Which is the best? I guess I'll juz use both constantly to generate profit.
  • #33
  • Aug 23, 2008 2:20am Aug 23, 2008 2:20am
Quoting bearking
How can we know where is the low and the high?? In an uptrend, a high will always have another high...and in a downtrend, a low will always have another low......please enlighten me...
Most people here don't see it, but I do. I have an Institutional trading program that I can see where banks stop buying or selling.

Believe me, if you think the trend is your friend, you are wrong. Like 95% of the traders.
  • #34
  • Aug 23, 2008 2:24am Aug 23, 2008 2:24am
Quoting aediaz1
Great statement Not only that, you managed to post it in a thread started by a some of the few who knows how FA works here at FF.
You don't need to know how FA works. You need to know why Financial Institution trade their money.

And I can tell you, they trade a lot different than almost every people here.
  • #35
  • Aug 23, 2008 3:20am Aug 23, 2008 3:20am
Quote
And I can tell you, they trade a lot different than almost every people here.

There's a difference between financial institutions, traders at financial institutions and large institutional traders.

Financial institutions actually tend to lose money trading, they're only in the market because they have to be in order to facilitate their other business. International bank, liquidity providers, a handful of others. Most of these places hedge their positions. You can see them on the "commercial" side of the COT. A lot of your small trader profit will come from these pockets.

Most traders at most financial institutions actually lose money. In "The New Market Wizards" one of the interviewees pegs a high percentage of these traders as losers, but their business brings in other traders to the brokerage, which in turn makes it worth doing.

Large institutional traders tend to be slow traders, using low leverage and long time frames. Since their primary concern is the management fee they don't want large scary drawdowns. They aim for lower returns and tend to take trades that can be planned ahead in advance. Most are executed by traders, but managed by a manager that wants to spend all of 10 minutes a week verifying trades (scaled entries and exits). A lot of these institutions are "always in" the market, they're bad at predicting volatility so timing their entries is usually a losing strategy.

All of these classes have another thing in common: They aren't trading with their own money. That simple aspect adds a great deal of stress to trading.

Small traders are in a class all to their own. Most small traders can't use big trader strategies and actually make any money, so following them is pointless. A lot of that comes down to edge, either you have one or you don't.

Forex is "difficult" because of it's volatility. Price moves all the time, which means if you trade a slow strategy you're going to have to deal with a lot of drawdown potential. You need to make sure your approach matches the current volatility pace of the markets you're trading. It's perfectly possible that someone could make a fortune trading stocks and lose a fortune trading FX, so this market may not be right for you.

They like to say you can trade FX 24 hours a day, but that's not true. The 80/20 rule applies, 80% of the movement occurs in 20% of the time (it's called autoregressive conditional heteroskedasity, look it up). A 100 pip move can occur in 15 minutes, followed by 8 hours of tiny sideways grinding.

That means getting in on the best moves means usually getting in when the market sucks, that's an emotionally difficult thing to do. So, you've also got emotions to conquer that other professions don't, and large traders are far less concerned about (they're still getting their salary either way).
  • #36
  • Aug 23, 2008 1:13pm Aug 23, 2008 1:13pm
All people on this thread need to start reading the j16 thread and things will become quite clear to you.

All trend reversals happen at key areas or are started by very easily readable candle stick patterns. on the hight time frames that is.
  • #37
  • Edited 3:28pm Aug 23, 2008 2:48pm | Edited 3:28pm
Quoting 300%mark
Most people here don't see it, but I do. I have an Institutional trading program that I can see where banks stop buying or selling.

Believe me, if you think the trend is your friend, you are wrong. Like 95% of the traders.
The trend isn't you friend? What do you call several years of dollar weakness? 95% of retail traders don't catch these longer term trends.

And neither the banks nor hedge funds nor anyone else is always right anyway. But if you look at the daily and weekly trendlines, and have the patience to use them, they are a huge help. Banks can't control where the markets go anyway.

You have to do 2 things as a trader-you have to get the direction right and you have to get the timing right. For example, I believe the pound will get a lot weaker against the dollar, and I think the signal for that is the break of the support from Oct. 2006. But if you ask me when that support will break, I can't tell you. All I can do is wait for it.

I think EUR GBP is going a lot higher too, but it needs to break a long-standing daily trend line (which it's hitting again now). I can't tell you exactly when it will break. Maybe now, maybe 2 weeks from now.

EUR USD-I think the major move is over and the pair will range. There's a long standing weekly support line that's around 1.45 now. We can probably get a touch of that but I doubt it'll break. But if it does-I'll trade it. You have to connect EUR/USD to oil (making things even harder). Daily and weekly charts show price is now at major trend line support. I don't know if those lines can break now, but even if they do price will probably bounce off $100. It'll probably range between 100-120 or so for a while anyway while things get sorted out a bit.

I base this on where I see central bank policy-but I trade it on conformations that the market agrees with me.

ECB-not cutting rates any time soon. Unionized European workers can potentially create a wage-price spiral (what central bankers fear most of all) that gets out of control. The ECB is currently in the process of engineering an economic slowdown in order to help bring inflation down.

Fed-not raising rates any time soon. Raise now when banks need all the money they can get their hands on? No way. Besides, Bernanke just said on Friday they expect the economy to slow, and that will help reduce inflation. If the economy doesn't slow (probably in Q3) then they'll start talking about raising. So look at what the NBER looks for to give you an an idea of where Q3 GDP will be: jobs, industrial prod., cap. utilization and new housing starts.

BoE-will cut soon and indicate it remains in an easing cycle.

Or, if you want to think like a speculator, which of the three banks is the most likely to move next, and which way. The BoE, and down.
  • #38
  • Aug 23, 2008 3:50pm Aug 23, 2008 3:50pm
tyvm for opening this interesting thread!

well, this is a very complicated topic and interesting one.

maybe i am too lazy to type atm, but i do agree that the less intraday information u use, the more chances of success u can have.

the problem is that trading dailies and upper time frames wont give u the fantastic unreal income 100 usd accounts are expecting so they can give up their day job and sit down in undies while trading and making a living.

about that thing that "trend is ur friend", well.. maybe for us retail and small fish in the sea is our only friend -did i mention that we have daily, and tick trends?- and yes... maybe big leagues simply trade completely different.

if u are a market maker.. trust me.. u MUST trade in other way... period!

another thing... big boys have always a plan.. and they have time frames for that... if they are visualizing a very long term trend for the eurusd to go 1.7... well.. guess how the heck u could do to buy DISCRETELY and at a good price lets say... 1k YARDS (1 yard = 1,000,000,000) along the whole next year?

of course they just CANNOT but our pathetic buy button and place a 1,000,000,000,000 eurusd order...

the larger u trade... the most creative u have to be to make it happen @ good price...

but yeah... they make more money that us.. but.. what happens if the eurusd turns down for whatever the reason u want, huh?... u think those guys can simply get out of that trade as fast as us?

being small gives u movility... that is our only competitive advantage if i can call it that way...
  • #39
  • Aug 23, 2008 5:20pm Aug 23, 2008 5:20pm
Quoting NewstraderFX
The trend isn't you friend? What do you call several years of dollar weakness? 95% of retail traders don't catch these longer term trends.

And neither the banks nor hedge funds nor anyone else is always right anyway. But if you look at the daily and weekly trendlines, and have the patience to use them, they are a huge help. Banks can't control where the markets go anyway.

You have to do 2 things as a trader-you have to get the direction right and you have to get the timing right. For example, I believe the pound will get a lot weaker against the dollar, and I think the signal for that is the break of the support from Oct. 2006. But if you ask me when that support will break, I can't tell you. All I can do is wait for it.

I think EUR GBP is going a lot higher too, but it needs to break a long-standing daily trend line (which it's hitting again now). I can't tell you exactly when it will break. Maybe now, maybe 2 weeks from now.

EUR USD-I think the major move is over and the pair will range. There's a long standing weekly support line that's around 1.45 now. We can probably get a touch of that but I doubt it'll break. But if it does-I'll trade it. You have to connect EUR/USD to oil (making things even harder). Daily and weekly charts show price is now at major trend line support. I don't know if those lines can break now, but even if they do price will probably bounce off $100. It'll probably range between 100-120 or so for a while anyway while things get sorted out a bit.

I base this on where I see central bank policy-but I trade it on conformations that the market agrees with me.

ECB-not cutting rates any time soon. Unionized European workers can potentially create a wage-price spiral (what central bankers fear most of all) that gets out of control. The ECB is currently in the process of engineering an economic slowdown in order to help bring inflation down.

Fed-not raising rates any time soon. Raise now when banks need all the money they can get their hands on? No way. Besides, Bernanke just said on Friday they expect the economy to slow, and that will help reduce inflation. If the economy doesn't slow (probably in Q3) then they'll start talking about raising. So look at what the NBER looks for to give you an an idea of where Q3 GDP will be: jobs, industrial prod., cap. utilization and new housing starts.

BoE-will cut soon and indicate it remains in an easing cycle.

Or, if you want to think like a speculator, which of the three banks is the most likely to move next, and which way. The BoE, and down.

Very interesting and very clear information about the fundamentals at this moment.

I suggest you trade for a long term. But, what if you are wrong with your analysis? How many risk capital do you want to loss at this? And what is your % target?

I also trade for a long term results, but do a market research every day.
  • #40
  • Aug 23, 2008 5:24pm Aug 23, 2008 5:24pm
Quoting iiivb
tyvm for opening this interesting thread!

well, this is a very complicated topic and interesting one.

maybe i am too lazy to type atm, but i do agree that the less intraday information u use, the more chances of success u can have.

I am strongly disagree with this comment:

the less intra day information u use, the more chances of success u can have

Can anyone explain me why?
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