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Mathematical reasons why MOST DayTraders & scalpers fail?

  • #101
  • Mar 19, 2007 11:22am Mar 19, 2007 11:22am
The title of this thread IS the reason why MOST traders fail... they'll put together some elaborate (usually mathematical) rationalizations to avoid the real reason...

Trading is a battle to the death with the greatest opponent you will ever face - yourself. Take all your mathematical equations, throw them out the window, and face the GD music.

I don't mean to sound combative, but that my friends is the ugly truth. Ask any broker who their biggest per dollar losers are, and they'll tell you that its usually successful engineers with big bank rolls from their 9 to 5. I think it's pretty logical why... they're pure number guys with grandiose math theories and nice salaries to try them out. However, what happens to them? That's right - Crash and Burn baby... the markets have much less to do with math and statistics, than they do with heart and soul.

Just my 2, take it for what its worth.

MM
  • #102
  • Mar 19, 2007 2:18pm Mar 19, 2007 2:18pm
I dont qualify myself as a trader (with my definition) yet. I'm doing live since one year, I found that trading with shorter time frames is like knowing the atomic structure of an element and then predicting its properties.
Try drawing a fibbo on 4hr or higher frames and you may go wrong but draw on a 1min frame and you will be amazed at the simplicity of it

........and this is a free world. I'm not tryin to hurt any body's ideology, if you don like the views just leave without grimacing, possibly they are not for you.

..........and one more thing math is a beautiful subject. You can use it for proving 1= -1 also if others can'nt catch you
  • #103
  • Mar 19, 2007 3:44pm Mar 19, 2007 3:44pm
1200 trades at 9pips - 3spread= 6pips that's +$72,000 using the calculation above. multiplied by 5 lots = +$360,000, Wow.
  • #104
  • Mar 19, 2007 5:38pm Mar 19, 2007 5:38pm
Quoting Jarret
Scalping is easy- but you need focus...

The most important thing for the success of a scapler or daytrader is Chart time.

Stay with one or two items/pairs that you want to trade and get to know them.
If I may add, use minimum number of indicators.
It's not, if a couple are good then a bunch should be great.
K.I.S.S.
IMHO
  • #105
  • Mar 19, 2007 9:38pm Mar 19, 2007 9:38pm
Wow, i guess i need a life. grin. i just read 104 posts in this thread and still have yet to see any "mathmatical" reason day trading can't be profitable.

I consider myself an intermedeate trader. Most of my profits arrive in my account by way of trades placed between 7GMT and out by 12GMT off a 15 min chart with very little squiggly lines...mainly just S/R, Fibos, and my favorite harmonic beats, targeting what ever the TA suggests is reasonable (most trades end up being somewhere between 25 - 35 pips).

I still can't really live life with a multiple-day-trade open! It's like that is hardwired ( for now ) into my persoanlity. Get me into a trade at the London Open via some form of technical breakout, let me set my TP and SL and i can go take a nap knowing the chart alarms will sound if my TP or SL is hit...until then i'm out like a baby...dreaming of life on the road with my sweetheart in our RV. . . but get me into some carry trade or similar that might last days and i end up watching the chart every time i pass the PC ! It's that FORD, CHEVY, thingy again...glad in the end most of us can agree to disagree and still be fxBuds at the end of the day.

: ) Thom
  • #106
  • Mar 19, 2007 10:08pm Mar 19, 2007 10:08pm
the reasons scalping seems not to work are money management and low payrates ( you can call it risk:reward if you want to also, but I find that deceiving) payrate is basically the tp/sl.

lets take 2 systems 5tp-32sl with a profit factor of 2.98 and compair it to a 10tp-29sl profit factor 2.59. (please note the profit factor is 0.5 higher for the 5-32)

[the profit factor formula is payrate*winrate/(1-winrate). mt4 actually puts this on your reports but never tells you what it is lol]

when planning risk you divide the risk by the max loss

this means the most you can make on a single trade is Win * Risk / Loss
so we have 2 systems

Risk * 5 / 32 and Risk * 10 / 29

say we planned on risking 10%(i know thats alot! but thats a diff discussion)

10% * 5 /32 = 1.5625% if we hit target of 5 pips
or
10% 10 / 29 = 3.44% if we hit target of 10 pips

now lets say 5/32 has a 90% winrate and 10/29 has a 80%

lets goto 10% risk again
5/32: 1.56% x 9 - 10% x 1 = 4.04% or 0.404% gain per trade (179 trades to double)
10/29: 3.44% x8 - 10% x2 = 7.52% or 0.752% gain per trade ( 96 trades to double)


so the key to scalping is trying to get your s/l as low as possible and your t/p as high as possible. there is a very fine line there though as you might never hit your targets if you have too high of a t/p.

another note: scalping is the most profitable way to trade. would you rather have 1% compounded 12 times or 0.25 compounded 48 times :+) the catch is you have to find a system first hehe
  • #107
  • Mar 20, 2007 12:19am Mar 20, 2007 12:19am
The original premise that you need to make 360% to break even scalping is bs math in my opinion. When you say 360% you are talking gross not net and since scalping occurs with a high frequency, the compounding occurs more often. Bottom line is that any trader needs a positive expectancy. If you trade high frequency - you can settle for smaller reward/risk if you are going to be profitable a high percentage of the time. That is always the tradeoff that you make.

As far as scalping in its purest form in forex is concerned(in terms of a trader using retail broker) it cannot be done over long term without an enormous amount of luck - if long term enough not even luck can save you. I used to scalp profitably other markets and not without my level 2 screen. Forex is just lacking too much in certain information for your typical retail trader - and tick volume is not something that can accurately mimick actual trading volume.

And if you use 100 to 1 leverage it is suicide. Like I said - you may be right for 4 years in a row and be laughing along, but if you plan on doing this forever, you will experience a moment where something in the world happens and price just gaps 1% and you are shit out of luck and your account. Not trying to be a crazy dissenter just a realist. The name of the game(especially in scalping and any kind of arbitrage) is execution and not how much can i make, but how little can I lose. 100 to 1 leverage will kill your account eventually - not an opinion - it is a fact if you are using any retail fx broker(unless of course you are employing other strategies to protect against those instances)
Man who scratches ass should not bite fingernails
  • #108
  • Mar 20, 2007 12:52am Mar 20, 2007 12:52am
Quoting Leugimp
And if you use 100 to 1 leverage it is suicide. Like I said - you may be right for 4 years in a row and be laughing along, but if you plan on doing this forever, you will experience a moment where something in the world happens and price just gaps 1% and you are shit out of luck and your account. Not trying to be a crazy dissenter just a realist.
Well if your scalping techniques net you 20 pips a day that's a solid 400 pips a month or almost 5000 pips a year so what do you care if the market gaps 1% (a lousy 100 or 150 pips maximum) one day?

Also, 50% of the time the market should gap in your favor, so overall it won't make a difference in your bottom line, in the long run, don't you think?
  • #109
  • Mar 20, 2007 1:24am Mar 20, 2007 1:24am
Quoting FXTerminator
Well if your scalping techniques net you 20 pips a day that's a solid 400 pips a month or almost 5000 pips a year so what do you care if the market gaps 1% (a lousy 100 or 150 pips maximum) one day?
a 1% gap against you and 100 to 1 leverage is a 100% loss on your account genius.
Man who scratches ass should not bite fingernails
  • #110
  • Mar 20, 2007 1:26am Mar 20, 2007 1:26am
Quoting Leugimp
a 1% gap against you and 100 to 1 leverage is a 100% loss on your account genius.
and if its on the last day of the year you will have managed to work one whole year for a 100% loss - surely you can see the problem in that cant you?
Man who scratches ass should not bite fingernails
  • #111
  • Mar 20, 2007 1:27am Mar 20, 2007 1:27am
Quoting Leugimp
and if its on the last day of the year you will have managed to work one whole year for a 100% loss - surely you can see the problem in that cant you?

Actually, that would be a big improvement for you - you're used to 100% loss much quicker eh!
Man who scratches ass should not bite fingernails
  • #112
  • Mar 20, 2007 1:46am Mar 20, 2007 1:46am
hi, i'm newbie here, and from indonesia. so forgive my english.

imho, with a good analytical skills and strong mental, any method you choose will be great.

for example scalping. with godd analytical skills, we can make a plan when to enter the market, if the market goes wrong when to quit, and when to take profit.

with strong mental, we can trade our plan without hesitation until we closed our position.

for myself, i don't like scalping because i still lack analytical skill and my mental is definitly not strong enough. so i trade back to basic with payrate ratio win 80pt and loss 40pt
  • #113
  • Mar 20, 2007 2:45am Mar 20, 2007 2:45am
Quoting Leugimp
a 1% gap against you and 100 to 1 leverage is a 100% loss on your account genius.
You mean people really bet their whole account in one trade ?
  • #114
  • Mar 20, 2007 4:06am Mar 20, 2007 4:06am
Quoting luqmanz
You mean people really bet their whole account in one trade ?
only when necessary
  • #115
  • Mar 20, 2007 4:48pm Mar 20, 2007 4:48pm
Quoting Leugimp
a 1% gap against you and 100 to 1 leverage is a 100% loss on your account genius.
So if I have $50,000 in my forex account (100:1 leverage account) and I trade 1 standard 100k lot with 100/1 leverage, this one trade could blow up my account if the market moves 1% against me???

I think you are simply confusing leverage with % of trading balance allocated to each trade.
  • #116
  • Mar 20, 2007 5:54pm Mar 20, 2007 5:54pm
Quoting FXTerminator
So if I have $50,000 in my forex account (100:1 leverage account) and I trade 1 standard 100k lot with 100/1 leverage, this one trade could blow up my account if the market moves 1% against me???

I think you are simply confusing leverage with % of trading balance allocated to each trade.
that is exactly what leverage is. if you have 50K in an account and are trading a 100K lot you are only using 2:1 leverage on that trade. if you were trading 50 100k lots that would be 100:1 leverage. So in fact you are the one confusing the two.
Man who scratches ass should not bite fingernails
  • #117
  • Mar 20, 2007 6:40pm Mar 20, 2007 6:40pm
Quoting Leugimp
that is exactly what leverage is. if you have 50K in an account and are trading a 100K lot you are only using 2:1 leverage on that trade. if you were trading 50 100k lots that would be 100:1 leverage. So in fact you are the one confusing the two.
You are still confusing the two Sir.

Ok, let's forget about trading balance for a moment. Let's say a trader opens a mini forex position on the Euro-dollar. You cannot see his trading account balance but you notice that he only needs $100 to control (own) $10,000 worth of currency.

Simple question then: what is the leverage used here?
  • #118
  • Mar 20, 2007 7:57pm Mar 20, 2007 7:57pm
Quoting FXTerminator
You are still confusing the two Sir.

Ok, let's forget about trading balance for a moment. Let's say a trader opens a mini forex position on the Euro-dollar. You cannot see his trading account balance but you notice that he only needs $100 to control (own) $10,000 worth of currency.

Simple question then: what is the leverage used here?

You are confusing the two. If I get a line of credit for 1million dollars and only withdraw 100K, am I currently using the entire line of credit. Although it is available to me I am not using all of it. Same goes for trading - Just because 100:1 leverage is available to you, doesn't mean you are fully using it. I dont know how to explain it any simpler than that - just because you have the leverage available to you doesn't mean you are trading with it, you can if you want, but if you don't want then you aren't.
Man who scratches ass should not bite fingernails
  • #119
  • Mar 20, 2007 7:59pm Mar 20, 2007 7:59pm
Quoting FXTerminator
You are still confusing the two Sir.

Ok, let's forget about trading balance for a moment. Let's say a trader opens a mini forex position on the Euro-dollar. You cannot see his trading account balance but you notice that he only needs $100 to control (own) $10,000 worth of currency.

Simple question then: what is the leverage used here?


The simple answer is you do not know - the leverage available here is 100:1 - but to know the leverage used you need more information.
Man who scratches ass should not bite fingernails
  • #120
  • Mar 20, 2007 8:03pm Mar 20, 2007 8:03pm
Quoting FXTerminator
You are still confusing the two Sir.

Ok, let's forget about trading balance for a moment. Let's say a trader opens a mini forex position on the Euro-dollar. You cannot see his trading account balance but you notice that he only needs $100 to control (own) $10,000 worth of currency.

Simple question then: what is the leverage used here?

This has been explained many times already in this forum. There is a difference between the leverage that your broker gives you and the true leverage that you use. The first refers to the margin you put up and the second refers to the ratio betwen the size of your trade and the size of your account (if you have $10,000 account, and you buy $100,000 true leverage is 10-1)
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