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

  • #41
  • Aug 23, 2008 7:16pm Aug 23, 2008 7:16pm
why is everyone trying to predict these big moves, it is not possible, the only thing u have is the info at the current/present time, use that and see where it takes you. for example the big move on the eur/usd started with the big pin bar at 1.6. u enter the trade and see how it develops. if u get an opposing signal u adjust ur stops and let it go.

If u get a big move great if not on to the next trade. Trying to predict using fundamentals or anything like that is impossible, the world changes so quickly its absolutely out of the question when it comes to predictions.

and yeah the trend is your friend until u get a very clear signal on the daily/weekly/monthly. then the trend is not your friend.
  • #42
  • Aug 23, 2008 9:28pm Aug 23, 2008 9:28pm
Quoting 300%mark
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?
why do you disagree?
  • #43
  • Aug 23, 2008 11:35pm Aug 23, 2008 11:35pm
300%-not that I mean to sound like a know-it-all, but the analysis of where these central banks are now is correct.

I do believe that when the pound breaks the October 2006 support in the lower 8500's it will decline further and by a lot. Everyone sees where the support is and that makes it easier to trade. As I said-I don't know exactly when that'll happen and for all I know it could go up a few hundred pips first. In the meantime, I just have to wait.

Look at a continuous oil chart-the daily and weekly trend line support is there, it's very obvious and I'm sure everyone sees it (which is exactly what makes it a good technical indicator). I don't know if it will break right now or hold, so again I'm just waiting. I think it will break at some point and when it does, price will test $100. It's just going to be something that people will want to see.

It isn't hard to spot the longer term trends because they're driven by fundamentals. It's harder to stay in them, because of the inevitable ups and downs. I think institutional traders do this a lot easier than retail traders.

Retail traders are looking for the little intra-day blips and bleeps. A lot of this movement is noise and a lot of it occurs because the big fish are eating the little fish. 95% fail and this is why-I'm sure of it.
  • #44
  • Edited 7:08am Aug 24, 2008 6:18am | Edited 7:08am
Quoting NewstraderFX
300%-not that I mean to sound like a know-it-all, but the analysis of where these central banks are now is correct.

I do believe that when the pound breaks the October 2006 support in the lower 8500's it will decline further and by a lot. Everyone sees where the support is and that makes it easier to trade. As I said-I don't know exactly when that'll happen and for all I know it could go up a few hundred pips first. In the meantime, I just have to wait.

Look at a continuous oil chart-the daily and weekly trend line support is there, it's very obvious and I'm sure everyone sees it (which is exactly what makes it a good technical indicator). I don't know if it will break right now or hold, so again I'm just waiting. I think it will break at some point and when it does, price will test $100. It's just going to be something that people will want to see.

It isn't hard to spot the longer term trends because they're driven by fundamentals. It's harder to stay in them, because of the inevitable ups and downs. I think institutional traders do this a lot easier than retail traders.

Retail traders are looking for the little intra-day blips and bleeps. A lot of this movement is noise and a lot of it occurs because the big fish are eating the little fish. 95% fail and this is why-I'm sure of it.
NTFX, whilst I totally respect your opinion, your wealth of knowledge surrounding long-term fundamentals, and indeed agree with most of what you have to say; I'm of the opinion that it's not really the timeframe issue that's the main cause of trader failure (which is what you're implying).

Rather, it's lack of time and effort in studying the technicals and/or fundamentals, eagerness to get started and make a killing, and the view that FX is a get-rich-quick scheme.

So although I do agree long-term trading is generally easier than something like scalping; the truth is these people wouldn't succeed even if they were trading long-term.
  • #45
  • Edited 7:58am Aug 24, 2008 7:47am | Edited 7:58am
I agree with what you've said. I would love to know the percentage of traders who do put the time in the learn TA and FA and who don't see forex as a get rich quick scheme that do become successful.

And just to clarify, I don't see any type of trading as "easy" even though it's easier to appreciate trends on a longer term basis. For example, if you do trade long term there inevitably will be times when much of your very nice profit will get wiped out and possibly turn into a loss. How do you deal with that? It isn't easy.

The next time your longer term position is in profit, you'll be tempted to take it. Then you'll start trading on shorter time frames and it becomes very hard again.
  • #46
  • Aug 24, 2008 1:08pm Aug 24, 2008 1:08pm
Quoting Rabid
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).

Sir, there are several flaws in you writing. I find it disappointing that you chose to write about something you have no understanding and by doing so you give the wrong impression to everyone else who reads it. Next time you write make sure you have first hand information. Ironically the topic of this thread is " Why trading forex is so difficult..", lack of information should be on the list.. One question remains unclear, why did you write it in the first place? Were you looking for admiration, respect, aknowledgement...
Respectfully.
  • #47
  • Aug 24, 2008 1:24pm Aug 24, 2008 1:24pm
I trade like a sniper ever waiting on those trades that have a high probability of working in my favour?Whether it take a day or weeks i wait never allowing my emotions to take control?remember no trade is a good trade.
  • #48
  • Aug 24, 2008 1:45pm Aug 24, 2008 1:45pm
Quoting monies
I trade like a sniper ever waiting on those trades that have a high probability of working in my favour?Whether it take a day or weeks i wait never allowing my emotions to take control?remember no trade is a good trade.
So.. waiting full time a week in front of a computer to make a several important entries? Isn´t boring?

It can also be done in 5 hours a week by using pending orders.
  • #49
  • Aug 24, 2008 3:05pm Aug 24, 2008 3:05pm
I dont wait or steer at the computer for weeks?I am a chartist?
  • #50
  • Aug 24, 2008 7:09pm Aug 24, 2008 7:09pm
Quote
Sir, there are several flaws in you writing. I find it disappointing that you chose to write about something you have no understanding and by doing so you give the wrong impression to everyone else who reads it. Next time you write make sure you have first hand information. Ironically the topic of this thread is " Why trading forex is so difficult..", lack of information should be on the list.. One question remains unclear, why did you write it in the first place? Were you looking for admiration, respect, aknowledgement... Respectfully.
You're going to have to be more specific on what you disagree with, there's a lot there.

If you're disagreeing with my position that a lot of bank traders are losers, well I happen to know that as a fact (recently saw it first hand, but there are numerous colloquial examples). You've got 10 losers for every 1 success.

If you're disagreeing with my position that most large institutional traders are slow traders, you need only look at the holdings disclosures of these large funds to prove my point.

If you're disagreeing with my position that large trader tactics don't often work for small traders, well then we should discuss the tactics we are familiar with and compare their relative returns and D/D per trading style. The techniques I am familiar work poorly for most small traders, mostly because of leverage and entry restrictions.

If you disagree that forex is "difficult" because of it's volatility well then that's just ridiculous. If the market moved consistently it wouldn't be a challenge at all now would it?

And if you're disagreeing with my philosophy that you usually have to get in "when the market sucks" then that's going to depend on your entry style, risk tolerate and those sort of things. I suppose if you're scalping for 5 or 10 pips it wouldn't matter, I'm talking about large position swings. This is doubly true when you're working w/ a large line.

Most of your posts (just reviewed a list) are very condescending but provide no real input or wisdom to the discussion. Unless you're just trolling for the sake of it, how about you clarify?

Oh and just because you disagree with someone doesn't make them wrong (or you automatically right). That's very emotionally immature, I expect better from ppl.
  • #51
  • Aug 25, 2008 1:09pm Aug 25, 2008 1:09pm
Quoting Rabid
You're going to have to be more specific on what you disagree with, there's a lot there.

If you're disagreeing with my position that a lot of bank traders are losers, well I happen to know that as a fact (recently saw it first hand, but there are numerous colloquial examples). You've got 10 losers for every 1 success.

If you're disagreeing with my position that most large institutional traders are slow traders, you need only look at the holdings disclosures of these large funds to prove my point.

If you're disagreeing with my position that large trader tactics don't often work for small traders, well then we should discuss the tactics we are familiar with and compare their relative returns and D/D per trading style. The techniques I am familiar work poorly for most small traders, mostly because of leverage and entry restrictions.

If you disagree that forex is "difficult" because of it's volatility well then that's just ridiculous. If the market moved consistently it wouldn't be a challenge at all now would it?

And if you're disagreeing with my philosophy that you usually have to get in "when the market sucks" then that's going to depend on your entry style, risk tolerate and those sort of things. I suppose if you're scalping for 5 or 10 pips it wouldn't matter, I'm talking about large position swings. This is doubly true when you're working w/ a large line.

Most of your posts (just reviewed a list) are very condescending but provide no real input or wisdom to the discussion. Unless you're just trolling for the sake of it, how about you clarify?

Oh and just because you disagree with someone doesn't make them wrong (or you automatically right). That's very emotionally immature, I expect better from ppl.
It is condescending only if you take it that way. I had a former colleague of mine have a look at what you wrote and he agrees with me, several issues you misunderstood. This is called first hand information, we both worked for the same bank and not only as traders.

What kind of wisdom are you looking for, the kind you get in a fortune cookie? Shortly after I wrote my first posts in this forum I began receiving pm's where members some even KT1 were insulting. I tried to answer their questions but it did not change the way they behaved, so I gave up. That is what I call immature or ignorance, take your pick. I admit there are few positive exceptions.

You did not answer my question. What was your motive to write? It is a great interest of mine to know what drives people to write in most cases they are incorrect on the subject but putting that aside what is it that they want to achieve by doing so? Most cases recognition comes to mind and if a person is right it should be given because most what is published is rubbish. As for me I am not looking for anything, just to be clear on the subject.

If you answer honestly to my question I will explain what you got wrong, take it or leave it. Again it is only condescending if you take it that way. Most cases you feel condescending if you are not sure of what you think, know or do, when it come to trading I do not question myself. Do not take it as arrogance, there is a fine line between arrogance and knowing.
  • #52
  • Aug 25, 2008 11:49pm Aug 25, 2008 11:49pm
Quote
It is condescending only if you take it that way. I had a former colleague of mine have a look at what you wrote and he agrees with me, several issues you misunderstood. This is called first hand information, we both worked for the same bank and not only as traders.

So you say. Again, you fail to provide any details about what you disagree with.

Your personal problems w/ other members is not my concern. But if you "answered" them the way you didn't answer me, I can see why they took offense. I'm giving you a chance to clarify your perspective so we can have an intelligent discussion. You're choosing to dismiss that opportunity for whatever reason.

My motive to write was to clarify some of the questions brought up in the thread. It's called trying to be helpful. A lot of new ppl assume that banks, "big money" or other "institutional traders" have all of the answers. They don't, and imitating them is often a road to disaster. One need only look to the CMO traders to see how they can fail.

Frankly what you THINK I got wrong is of no concern to me. I'm just merely giving you a chance to act like an intelligent contributing member of this forum. It's up to you whether you take it, it will not effect my end product either way. Right now I'm trying to make a decision... whether your input should be generalized with the useless trolls of the internet, or whether it should be considered contributory to the thread. The latter I'd like to promote, the former I'll simply ignore.

Your choice.
  • #53
  • Aug 26, 2008 5:17am Aug 26, 2008 5:17am
Quoting Rabid
The 80/20 rule applies, 80% of the movement occurs in 20% of the time (it's called autoregressive conditional heteroskedasity, look it up).
Actually, you might not want to name-drop econometrics terms in your conversations randomly next time, unless you're sure you know what they mean.

It's autoregressive conditional heteroskedacity btw and it refers to volatility's tendency to cluster, the tendency of big moves to be followed by other big moves and slow moves by other slow moves. I happen to use E-GARCH and GARCH filtering in a portfolio model I built some time ago and I can assure you I know what the ARCH part refers to.

I don't really see the connection to a presumed 80/20 rule as defined by you.

By the tone of your writing I'd say you were the condescending one, not Northernstart.
  • #54
  • Aug 26, 2008 7:05am Aug 26, 2008 7:05am
Quote
It's autoregressive conditional heteroskedacity btw and it refers to volatility's tendency to cluster, the tendency of big moves to be followed by other big moves and slow moves by other slow moves. I happen to use E-GARCH and GARCH filtering in a portfolio model I built some time ago and I can assure you I know what the ARCH part refers to.

Actually no it isn't...

Linky:
http://en.wikipedia.org/wiki/Autoreg...roskedasticity

We're both wrong, laff. It's hetereoskedasticity. Spelling errors aside (what, is this a spelling bee of insanely long words?), however...

It's to model volatility's tendency to clump or cluster. Which is exactly the same thing as saying that most movement occurs in bursts, then the rest of the time there's far less movement.

Now, it doesn't actually mean that big moves are tended to be followed by big moves (because that's actually not true), it means that big moves are followed by small moves and that long periods of small moves are followed by big moves. We're trying to model the time (etc) difference between the 2. To quote wikipedia...

"It is employed commonly in modeling financial time series that exhibit time-varying volatility clustering, i.e. periods of swings followed by periods of relative calm."

I think that says it all. Of course that's perspective, since one could divide each big move into sub moves and qualify it that way. Anyway, that should explain why I said that the bulk of movements tend to occur in bursts. So to generalize... a bulk of the movements occur in relatively small amounts of time, where the rest of the market is relatively quiet. Or, "80% of the movements occur in 20% of the time." Which may not be perfectly correct down to the percentage, but it's a useful generality to keep in mind when placing trades.

If you're putting your trades after big moves you are statistically less likely to hit another big move, which is yet another reason why so many traders fail. Hence the topic at hand "Why is trading forex so difficult" ... well one reason why it's difficult is that people tend to put on trades after the big moves, which end up being when most minor retracements happen.

Quote
I don't really see the connection to a presumed 80/20 rule as defined by you.

Does that explain it?

Quote
Actually, you might not want to name-drop econometrics terms in your conversations randomly next time, unless you're sure you know what they mean.

I could say the same of you, apparently. But uhm...

Quote
By the tone of your writing I'd say you were the condescending one, not Northernstart.

Probably not a discussion you want to get involved in, laff.
  • #55
  • Edited 8:01am Aug 26, 2008 7:40am | Edited 8:01am
Quoting Rabid

Now, it doesn't actually mean that big moves are tended to be followed by big moves (because that's actually not true), it means that big moves are followed by small moves and that long periods of small moves are followed by big moves.
I don't think you understand what "clustering" means and you refuse to understand that your explanation is actually not correct.Have it your way, I don't really care about arrogant pricks that keep insisting they know the answer to every question and refuse to admit it when they're wrong.

Here's another wikipedia page for you:

http://en.wikipedia.org/wiki/Volatility_clustering

I quote:

"In finance, volatility clustering refers to the observation, as noted by Mandelbrot, that "large changes tend to be followed by large changes, of either sign, and small changes tend to be followed by small changes."

----

And since I mentioned this, for anyone else reading this and who might be interested in these things, I did a test between the returns of a few global indexes and the returns of various forex pairs, the returns of the forex pairs exhibit higher volatility clustering and fatter tails, so in theory this would translate into higher risk as compared to the instruments I benchmarked them against, the several global indexes I picked such as CAC 40 and so on...
  • #56
  • Aug 26, 2008 7:57am Aug 26, 2008 7:57am
Quote
I don't think you understand what "clustering" means and you refuse to understand that your explanation is actually not correct.Have it your way, I don't really care about arrogant pricks that keep insisting they know the answer to every question and refuse to admit it when they're wrong.
Sigh. We've already been over this. They're the same dang thing, it's all a matter of perspective, which is why one page says one thing another says the exact opposite. Yet they're both right.

It's all a matter of time frame, one man's "5 days of big volatility followed by 10 days of small volatility" is another man's "week of big volatility followed by 2 of small." Needless to say if you wait till the big week of volatility to enter your trade, the odds are not in your favor.

The period size is not the question, it's the clumping that's the issue.

You're just upset that you were proven wrong. Gotta love those "arrogant pricks that keep insisting they know the answer to every question and refuse to admit when they're wrong" don't ya? LOL.

Oh, and please keep the foul language to yourself. There may be kids reading this.
  • #57
  • Edited 8:26am Aug 26, 2008 8:09am | Edited 8:26am
Quoting Rabid

Now, it doesn't actually mean that big moves are tended to be followed by big moves (because that's actually not true), it means that big moves are followed by small moves and that long periods of small moves are followed by big moves.
Haha!

You were just about to invent a new kind of econometrics in that phrase there and possibly win a Nobel prize for your new "discovery" and now not only you don't admit you were wrong, but you're actually saying that what you said and what I said and the wikipedia article said are the very same things.

Except that in your previous post you said I was wrong : '(because that's actually not true)".

Now you changed your mind so that you don't have to admit you were wrong. Nice one!

Anyone with half a brain can see through your BS.

And actually, I was not mad at all, I was pretty pleased that all it took to disprove your comments was a simple lookup on Wikipedia. And I still am pretty pleased because you continued to prove you're full of BS.

To use your words, the "period" size is the issue, because volatility is a function of time.

http://en.wikipedia.org/wiki/Volatility_(finance)

The formula for volatility contains a time dependent parameter, T or P depending on what you're trying to compute.

There's be no volatility clustering or volatility at all if time and the correct succession of returns in time weren't considered.

The "clumping" as you call it has no meaning outside of time, or "period" size as you call it.

---
I'm done with this..I'm pretty sure you could continue endlessly on the same puerile tone refusing to admit you are wrong.
  • #58
  • Aug 26, 2008 8:35am Aug 26, 2008 8:35am
Quote
Except that in your previous post you said I was wrong : '(because that's actually not true)".
Sigh. I was referring to your mis-spelling of the word. I found it funny that you were trying to correct my spelling with another mis-spelling.

In your original post you didn't really say much to elaborate the concept.

I did say this, however:

Quote
I think that says it all. Of course that's perspective, since one could divide each big move into sub moves and qualify it that way.
Scroll up if you don't believe me. It's right there. I made it quite clear that this was the case, which is exactly why I said in my last post...

Quote
Sigh. We've already been over this.
Understand?

Quote
Anyone with half a brain can see through your BS.
Oh for the love of... Look, I tried to clarify. You asked, I did my best to explain what I meant. I understand that not everyone will understand the reference or connection, but I figured some might benefit from it. Heck, I'm hoping all of this nonsense won't be for vain and some people out there reading this thread might go "Hey, that's an interesting point, I should read up on that!" and learn something.

Quote
To use your words, the "period" size is the issue, because volatility is a function of time. There's be no volatility clustering or volatility at all if time and the correct succession of returns in time weren't considered.
Sigh, again, we've been over this. And again, you're twisting my words.

The period size is not important to the concept because it's one of the variables solved for IN the concept. Understand? You must define your units before you can solve for them.

Quote
The "clumping" as you call it has no meaning outside of time, or "period" size as you call it.
I never said it did. Ugh. You're just arguing for the sake of it now, aren't you?

Language aside... it's a big block of volatility followed by a longer block of small volatility. Ok?

So with that clarified, let's expand the thought a bit. If you take a trade after the big block of volatility you have to grind thru the other one.

A bulk of traders do this, it's why ppl still think you can't time the market, and why a lot of ppl under-perform the average when they try to. So in general... 80% of the moves happen in 20% of the time (and yes, the exact numbers may not be correct there, the concept is still useful).

If you don't believe that statement, well, you're welcome to simulate it for yourself and get the exact numbers, but I've seen it happen for years. So to the point, are you disagreeing with that particular statement or not? If so, what evidence do you have to the contrary?
  • #59
  • Aug 26, 2008 12:14pm Aug 26, 2008 12:14pm
OK, with that being said, let's get back to the long term trend. IMO, the trend is for dollar strength going forward, and we could see a move which lasts a year or more.

While it may be too early to trade this, what might happen is that the Fed could be raising rates as the BoE (and possibly ECB) are reducing. Speculation may also rise that the Fed will increase borrowing costs irrespective of inflation, because it doesn't want to see an eventual recovery turn into an overheated situation. What that means is that a move to get rates back to a more neutral level (i.e. more in line with inflation and away from negative) could be in order.
  • #60
  • Aug 26, 2008 12:49pm Aug 26, 2008 12:49pm
Quote
OK, with that being said, let's get back to the long term trend. IMO, the trend is for dollar strength going forward, and we could see a move which lasts a year or more.

Sweet. Yea, I think you're right. The big dollar weakness trend has lasted for years. Flip out to the weekly and look at the eurusd, was an uptrend since 2002. Trendline isn't far from breaking, if it does... watch out.
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