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Quoting hanover
Re the earlier comments on average ROI, I suspect that much depends on the type and accuracy of one's system, the timeframe being traded (scalping, intraday, swing trading, position trading, etc), and the position sizes. By the latter, while I realize that forex is completely scalable, I mean that a small retail trader should easily be agile enough to avoid liquidity problems, while a large bank or fund moving vast sums might need to unwind positions more slowly. I don't know to what extent that's true, but I've read that, despite the size of the forex market, liquidity can become an issue for the really big players.

A retail trader who is trading intraday will get the opportunity to compound his gains (and losses!) quickly. Assuming his method delivers a genuine edge, I don't see why returns well in excess of 20%-30% per year shouldn't be easily possible. If I didn't believe so - then for me, persoinally - there would be little point in pursuing a career as a trader; I'd need to start with a $200-$300k (that's NZD, I live in NZ) account just to make a reasonable annual income. And possibly more so, IMHO, to justify the time and effort, and levels of stress, involved. With interest rates in this part of the world being so high, it's not too difficult to find low(ish) risk passive investments that return 8%-10% here.

David
I totally agree with you. Earning 50% or more is what motivate every trader to start trading forex in the first place. I believe earning 80% per year (Full time trader) is highly possible. Those earning 120% per year or more is not becoz they leverage too high, it could be they are trading with more than 1 system with high probable set up. If u have 5 system that gives 70% winning. U can make many trades in a month, earn more and lower ur risk by diversifiying money with the other systems u have. Once u have good results with a system for at least a year, keep trading the system and move on to finding other system to trade.
  • Post #42
  • Quote
  • Edited 5:44am Oct 24, 2008 5:22am | Edited 5:44am
Quoting bundyraider
How small a lot size does your broker allow? (...per pip...roughly on a say a USD based pair)

Keep in mind that the market is extraordinarily volatile at the moment. Many pairs are moving multiples of their long term average daily ranges.

Makes it hard for anyone starting out. Which is a pity.

.
I would say otherwise. Now is a good time to start trading forex. Do ur demo during this rare market condition, once ur are good to go with live, the market might just go back to "normal" condition



Quoting pug123
Thanks for all responses. I got one more question.

Most of the experienced traders usually say that scalping it is not strategy for rookies and here is problem for me. I think newbies very often choose scalping not only for become quick rich (well in fact quick loose at the begining , I know) but becouse of the fact that they don't own enough big depo.

What is my point. I've tried to play 1H,4H charts but it was really frustrating to me when market went in opposite side. I did not know if I should still keep position which has for example -60pips.. On 5min charts it was easier. If it's for example -15 ,-20 close position..but on 1h/4h charts... I have not known if market will come back and go as I thought or...it started going opposite side.
On 5min it was easier to predict.. Yes I know..it takes time That is why I think many rookies start from scalping.
I think is the opposite. Newbies should start with scalping to help them understand how the market moves more easily than high TF trading. If u go to 5 mins or 1min TF, u will get the feel of trading ranging, trending, fibo retrenchment, fibo extension, breakout, S&R, pattern and whole lot more in just less than a month. If u trade 60 mins or 240 mins TF u might take serveral months to see that happen before ur eyes.

And I agree that higher TF need more room for pips to move. U can't set 10 pips SL for 1H chart isnt it ? Go ahead with trading 5 mins or 1min chart, it will surely speed things up.

Always remember that demo is very importance in trading forex. When i first started trading forex, i didn't even demo and go live trading, thinking that my system will work coz i have backtested it. It was so wrong and I had lose more than half of my account. What u can do now is demo with the actual amount of money u gonna trade. Lets say u have left $2000 on ur live account, open up demo account and reset the amount to $2000 and start trading the demo. If u can grow ur account 30% - 40% in a month (with MM) or more with scalping on lower TF, u might just be ready to go live. Earning more % in demo is good because if anything goes wrong in live, u have a better chance that u will remain positive % on the end of the month.

If want to be more on the safe side, do 2 stage demo. First stage demo is opening up demo account to trade. Second stage demo is to trade live with micro OR mini lot for a few months.
Quote
Those earning 120% per year or more is not becoz they leverage too high

J84, there are folk who post here claiming ROI of anything from 5% to 20% per month, consistently. Of course it's anybody's guess as to whether they're telling the truth. If they are, then compounding 10% per month will return > 200% annually.

Let's say an intraday trader makes just one trade every day, with a win rate of 60% at 1:1 RR, risking 2% of his capital per trade. Then his average return per week would be (2% x 3) – (2% x 2) = 2%. Compounding weekly, that's an annual return of ~180%.

If he averages two trades per day, then his average return per week = (2% x 6) – (2% x 4) = 4%. Compounding 4% weekly gives an annual return of ~670%. (Wow!!)

That shows, at least theoretically, what can be achieved with a small edge, and only 2% risk per trade, which is hardly overleveraging. Of course one will have good weeks, and bad weeks, but we're talking averages.

So what happens if the trader averages only 5 trades per month (approx 1 per week)? Well then, his monthly ROI is 2%, which compounded monthly gives an annual return of ~27%.

IMHO, all of this illustrates the importance of high transaction turnover. Everything else (i.e. system expectancy) being equal, the more trades executed in a given period makes a massive difference to annual return, which the process of compounding increases exponentially.

Quote
And I agree that higher TF need more room for pips to move. U can't set 10 pips SL for 1H chart isnt it ? Go ahead with trading 5 mins or 1min chart, it will surely speed things up.
Like I just said, I definitely agree with 'speeding things up' (provided that expectancy isn't compromised in the process). But it's still possible to trade the higher timeframes with low risk, if you want to. Simply find a broker who offers microlots and trade small position sizes. At 10c per pip a 200 pip stoploss (for example) is only $20 risk per trade. At the end of the day, it's the ratio of amount returned divided by the amount risked that determines system expectancy.

Quote
Always remember that demo is very importance in trading forex. When i first started trading forex, i didn't even demo and go live trading, thinking that my system will work coz i have backtested it. It was so wrong and I had lose more than half of my account.

I totally agree with you about demo accounts.

A lot of experienced traders think that demo accounts are a waste of time, supposedly because:

1. They don't prepare the trader for the emotional onslaught of trading for real $$$.

2. Apparently some brokers manipulate prices on live accounts, therefore prices quoted on demo accounts are inaccurate, i.e. they make trading seem too easy.

I disagree with this. After demo trading for a few months, I opened a small live account back in 2006, because (after reading Mark Douglas' best-seller Trading in the Zone) I wanted to prove to myself that I could trade in a disciplined fashion. I took no more than 1% risk on each trade, and I simply set my entry, TP and SL and walked away, so there was absolutely no opportunity for emotional decision making after each trade had been opened. Hence I can honestly say that I executed my plan with the discipline of a robot. But the plan itself was not good enough: I made about 85 trades in 3 months, and lost ~9% of the account, at which point I ended the experiment.

The conclusion that I reached is that "MM + psychology" is not enough. It's also necessary to have a method that delivers a real edge. Being able to time entries and exits correctly is paramount. To state the obvious, P/L = exit price – entry price.

Hence, my view re demo accounts, is to use one until you're totally confident that your method is profitable. Three possible reasons:

1. Without a profitable approach, your account will bleed to death anyway, no matter how good your MM is, or how disciplined you are. Why take the unnecessary risk that your approach might be unprofitable, and therefore donate your money needlessly to the market?

2. Without absolute confidence that your approach is profitable, you'll likely find it almost impossibly difficult to trade with discipline (unless you do what I did: enter the trade and then switch the computer off). How do you establish that confidence? By first proving its profitability to yourself in demo.

3. By trading live too early, you're taking on both proving your approach, and the psychological factor, simultaneously. If you start to lose money, it becomes more difficult to detremine whether the fault lies with the approach itself, or the implementation.

Just my 2c worth.

David
Quote
A lot of experienced traders think that demo accounts are a waste of time, supposedly because:
Experienced traders often forget exactly how much they did not know when they got started. Start w/ demo, only progress to live trading when you've got a few profitable months under your belt. Isn't perfect, but if everyone did that far fewer ppl would blow real money down the crapper.

Once you move to live, start w/ a small live account and trade the smallest lots you can. Set metrics, ways to measure your performance, such as anticipated returns, time 'till a particular account equity, max acceptable drawdown, etc. Work both ways, set a low number that will send you back to demo and another that signals when it's time to increase your account size.

Then let either work itself out. That way you either go back to demo and practice for a while or you increase your lots because you've earned it.

Quote
1. Without a profitable approach, your account will bleed to death anyway, no matter how good your MM is, or how disciplined you are. Why take the unnecessary risk that your approach might be unprofitable, and therefore donate your money needlessly to the market?
Hehe, bleed away if you're lucky. Some ppl use complex hedging (or no SL) and believe they are safe because they've yet to experience a drawdown. Returns always regress to the mean, and if your mean equity is $0 because you don't have an edge... then it really doesn't matter, it'll either happen gradually or happen all at once, but it will happen sooner or later. The law of large numbers is ruthless, either it's on your side or it isn't. There is no shortcut.

Quote
2. Without absolute confidence that your approach is profitable, you'll likely find it almost impossibly difficult to trade with discipline (unless you do what I did: enter the trade and then switch the computer off). How do you establish that confidence? By first proving its profitability to yourself in demo.
That's why I'm a huge fan of backtesting. Just because something is good in a backtest doesn't mean it's good in a forward test, but if it's good in backtest it is atleast worth testing in a forward test. When you've seen a system work over 10+ years of data you'll know exactly what to expect when you have a losing string of trades.
Quoting pug123
Thanks for all responses. I got one more question.

Most of the experienced traders usually say that scalping it is not strategy for rookies and here is problem for me. I think newbies very often choose scalping not only for become quick rich (well in fact quick loose at the begining , I know) but becouse of the fact that they don't own enough big depo.

What is my point. I've tried to play 1H,4H charts but it was really frustrating to me when market went in opposite side. I did not know if I should still keep position which has for example -60pips.. On 5min charts it was easier. If it's for example -15 ,-20 close position..but on 1h/4h charts... I have not known if market will come back and go as I thought or...it started going opposite side.
On 5min it was easier to predict.. Yes I know..it takes time That is why I think many rookies start from scalping.
I know I am lasy to read on what other people system that is too much work. I just spend 5 or 6 days to search for the indicator as simple as possible to give me signal. that is how my system come together. Hope you will like it.

maybe you should check out my system. but remember wait unitl right signal before enter. no fossy. just simple.

for 1h and 4h chart. best is using ADX, when it have big tunnel, if it does enter down. or you check all other major pair, if longer time usd is strong or not. then decided which side you going to buy.
Quoting pug123
Thanks for all responses. I got one more question.

Most of the experienced traders usually say that scalping it is not strategy for rookies and here is problem for me. I think newbies very often choose scalping not only for become quick rich (well in fact quick loose at the begining , I know) but becouse of the fact that they don't own enough big depo.

What is my point. I've tried to play 1H,4H charts but it was really frustrating to me when market went in opposite side. I did not know if I should still keep position which has for example -60pips.. On 5min charts it was easier. If it's for example -15 ,-20 close position..but on 1h/4h charts... I have not known if market will come back and...
1) Determine % risk of account per trade eg 2% of 1000USD = 20USD which also translate to a 50 loss streak required to wipe the account.
2) Determine the necessary stop loss in terms of pips for the particular trade, eg 100pips which may be the high of a previous bar or a S/R level
3) Adjust lot size accordingly such that a -20USD = -100pip, ie 0.20USD/pip
For XXXUSD pairs where standard lot:10USD/pip, mini:1USD/pip etc will mean that the lot size you can open on this trade will be 2000

I've switched brokers just to gain the flexibility of adjusting lot sizes which also helps in scaling out of profits too, still learning myself, guess I can consider my first account blown too.
I need to put up stop losses.
  • Post #47
  • Quote
  • Last Post: Nov 7, 2008 3:48am Nov 7, 2008 3:48am
I suppose it's only a psychologic question..There are a lot of people who loss money every day but not all leave this thing and over and over again return to do it. You have to decide if is it really interesting for you and do you do everything you can to be successful trader?
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