Help for Newbies (Discussion Thread)

It seems to me in my 4-5 months of demo trading, that there really isn't anything wrong with taking profits and banking them. Profits are profits. And if you missed the opportunity for a larger profit, so what? There will be countless further opportunities to come. Just time looking at the screen and watching difference scenarios develop, without trading, can teach me a lot. Sitting back and just getting a sense of the market is really enlightening. Every once in awhile I will suddenly realize that I absolutely KNOW what is going to happen next. And it does. I wait for those moments and trade them. So far, so good.

But I found the post you're referring to. Needless to say it was on the first page of this thread and I worked backwards to try and find it .

I'm further down the line as a trader compared to then and I would agree with your point about taking profits. It's a long time since I worried about pips I could have made if I'd stayed in longer.

I have targets for entries and targets for exits and live with those decisions. Very occasionally I may cancel a TP order if my instincts tell me that there may be more to come, but as a rule I have found this has cost me pips or added to pressure if things don't work out.

Thanks for your input.

Hello Peter! Are you around?

Hope things are fine with you!

A question:

I always seem to hear that trading is a zero sum game
with one party winning only at the expense of another.
I was just reading this, for example:

But, there are so many classes of participants with objectives
on many different time frames. Why can't both participants in
a transaction win - or for that matter lose?

On my attached screen shot participants A and B enter the
market in a transaction together. They don't exit at the same
time though and both exit at a profit. Right? Am I missing something
obvious?

Hope this finds you well Peter!
Brent

I'm not sure, but here's my take: You are right that both A and B could profit in that situation. However, think of all the thousands of other trades that would have taken place during that whole time frame, some winner, some losers. All in all, I think it would roughly be zero-sum.

At the same time, the brokers are among the traders counted in the sum, and they ALWAYS get your spread. So I guess the sum is gradually adding up, getting larger and larger. That sum represents all the commissions/spread profit taken by the brokers. It grows as people place more trades and as more and more people enter this business...Like a big pyramid scheme.

Hi Peter, great stuff! Even though I've been trading the forex for about five years, I'm still a newbie. Only in the past year have I started to see the light about psychology, and getting out of the indicator trap. Your posts have been very helpful. I also recommend "Emotion Free Trading" by Larry Levin. That has been very helpful for me in overcoming some of the psychological hurdles.

Anyways, I have a question about the frequency of trades. I know you exercise great patience in waiting for those ripe setups. My question is: About how often do you come across a good setup on an individual currency pair. Also, how many pairs do you follow? All together, about how often do you place a trade?

Furthermore, do you recommend following only one or two pairs at first, or is it better to follow several? I could see how following only a couple would allow you to really get to know the behaviour of those pairs. At the same time, such a low frequency of trades might make it difficult to remain patient.

tradingcube and Marry Pippins were asking about when to exit. They mentioned the problem of having a decent, yet unrealized, profit, but then seeing it disappear because they weren't sure when to exit. Well here is some simple math that might be able to give you a guide. This might be a long post, but bear with me. I think my explanation is fairly clear, if not, I'm happy to clear it up.

I hope you have been keeping good records of all your trades. If you have, you can distinguish between the trades that, at some point, showed a substantial profit, and the trades that never really materialized. You want to look at your records and calculate the following things:

1. The percentage of your trades that became profitable (even if you didn't keep that profit)
2. The percentage of your trades that never really made a significant profit.
3. The average loss of those trades included in #2. (This could be calculated as a percent loss or as a pip loss.)

NOTE: If you add up #1 + #2 plus the percentage of your trades that break even, you should get 100%.

In statistics there's something called the expected value (in trading it's called expected return). It's equivalent to your average profit per trade (including both winners and losers). This idea is completely independent of trading strategy/technique/system so you can apply it to any strategy. Here's the formula:

expected return = (ave. profit)*(percentage of winning trades) - (ave. loss)*(percentage of losing trades)

Now in order to be profitable, you must have a positive expected return. Remember that expected return is exactly equal to the average profit per trade (i.e. you should get the same number if you add up all your gains and all your losses and divide by the total number of trades, including both the winners, the losers, and the break-even trades). Clearly, in order to be profitable, your winners (coupled with the frequency of winning trades) must outweight your losers (coupled with the frequency of losing trades). So, to be profitable, you must have: expected return > 0. In other words:

(ave. profit)*(percentage of winning trades) - (ave. loss)*(percentage of losing trades) > 0

or...

(ave. profit)*(percentage of winning trades) > (ave. loss)*(percentage of losing trades)

If you're having trouble knowing when to exit a profitable position, you can try the following: For the purposes of this formula, you can consider those trades that became profitable as winning trades, then calculate the average profit you would need in order to be profitable. Let's look at the formula written in terms of the number list above:

(ave. profit)*(#1) > (#3)*(#2)

Divide both sides by (#1) and you will find that in order to be profitable, you must have an average profit of at least:

(ave. profit) > (#3)*(#2)/(#1)

EXAMPLE:

Let's say your trades have been going like this:

#1 = 70% profitable trades (even if they weren't all realized profits)
#2 = 25% losing trades
#3 = 2% (your account goes down by 2%, on average, if you lose a trade)

Note: #1 + #2 = 95%, so this is assuming that 5% of trades are break-even.

(ave. profit) > (#3)*(#2)/(#1)
(ave. profit) > (2)*(25)/(70)
(ave. profit) > 0.71%

Note: If you want, you could use your average loss in pips to find the average number of pips you must get.

That means if you gain 0.71 percent on your winning trades, you will break even, in the longrun. So that is your guideline. When you're in a trade that is clearly a winner, you should try to get at least that amount. Of course higher is better. If your open position is at a point that would give you 2% profit, great! I would say it's a good idea to protect some of that by moving your stop up. Bear in mind that this is an average too...so you could have some profits that are higher and some that are lower and still come out ahead, but the average of your gains must be greater than 0.71% (in this example) in order to be profitable in the longrun.

I hope this wasn't too confusing.

This makes sense M! Thanks for the reply!

Best Regards,
Brent

One more thing...For comparison, as far as I understand it, the stock market is not zero-sum. A company issues stock as a means of raising capital. Of course sometimes (most of the time) you are buying stock from another holder of that stock, but sometimes you are effectively buying it from the company (technically, when new stock is issued, an investment banker buys it from the company and then sells it on the secondary market). At any rate, you do not necessarily need to be taking it away from another investor. It is possible for a company to issue some new stock to a group of investors, and then to have all of the investors and the company turn a profit. That is essentially what all publicly traded companies and stock investors hope for.

The forex is a different animal. The value of currencies naturally fluctuates due to many different factors. Sometimes people, companies, or governments need to exchange some amount of one currency for another. It could be to hedge against these fluctuations if they are doing business in a foreign country, or maybe it's simply to purchase something in a foreign currency. The way I see it, speculative forex traders provide a service to these people. Traders provide liquidity. With so many traders buying and selling at all times, this facilitates the currency exchange transactions that non-speculative participants require. Of course we also try to chop each other's heads off while we do it.

hello,
I just got this indicator and and i seem to have forgotten how to install it into my metatrader4 platform.
Please i will appreciate if someone could give me step by step direction on how to do this.

Hi all,

I have been reading and following the Help for Newbies: What can you learn on Forex Factory thread, especially the Account Size and leverage parts.

Here's my story. I currently have a $2300 'Mini' account (10,000 lots) with GFT. After reading this read, i've realized it would be in my best interest do downgrade to Micro or a Nano account, but GFT does not offer such small lot sizes.

Do you enlightened folk on this sight have a broker/platform that you could recommend for me to check out?

I've learned alot reading this thread and im trying to follow the lessons learned by those who came before me.

Thanks

To install indicator copy it to Crogram FilesMetaTrader 4experts

I got a question.In this thread there is a post saying to determine leverage is to know how much our risk is first.

EDITED: Just solved my puzzle by reading other forum.

http://www.forexfactory.com/showthre...95#post1582995

Hi Pete, thanx for putting thing together for Noobs.

I've been trading demos for 6 full intensive months when I worked at a local Futures company, mostly on HSI & GJ (High volatility) with several successful accounts that gain triple or double in a couple of months.

Tried various kind of Indicators & EA's for the full 2 months of it but eventually found my style to be the conventional way, THE KISS WAY
1. Watch the trend at daily & trade on lower TF (this is the main part where we had different style method).
2. Determine SL/TP/Trailing using pivot (High-Low=range, Mean, Median) Thanks God for the Trailling Stop.
3. Off course...Basic Money Management & Trading Psychology to mix them all (Account size, Lot size, SL/TP/Trailing).

I've stopped trading for a few months after quitting from that local Futures Co and now I kinda missed that trading activity. Now I'm back and need something to bring back that old spirit and knowledge. That's when I stumbled upon your thread, it really gives me a new enlightments...Thanx mate for the knowledge & experience sharing, keep up the noble works.

NB: Theres a KISS way in determining SL/TP/TS...One profit to cover for two bad trades, Sooo you might wanna try to keep the TP & TS two fold from the SL

there exists in this world a simple little chart overlay called "barrys support and resistance" and it is a wonder of wonders !

couple that overlay with two bols bands at 20 and 50 and you have ALL the support and resistance you will ever need, for ANY timeframe, right in front of you forever.

if you need ANY confirmation, put them on your chart and take a LOOK !

after you stop gasping with your new found informational tool, you can go out and make some pips, as do the people on my thread.

using NOTHING but support and resistance, just like the BIG dogs, I average 350 pips per day, and usually around 100 on my overnite trades, which come home to roost while i sleep.

make it as hard as you wish, buts its SO simple (not easy, but simple !) that you will never go back to discussing how it works and simply WORK IT !

enjoy and trade well

mp

The Scot pokes the Turtle under the ribs...
Hey! You awake?
Just wanted to agree that Targets are Set @ Entry and only adjusted when it becomes apparent I may be wrong.

That plus I just wanted to swing by & say Hi to a friend.

we discuss this constantly over on my thread, and dang if it doesnt turn out that newbs now see where to place that little devil consistently

try "barrys support and resistance" and the bols FOR FINAL PRICES and youll come out smelling like roses each and every time.

enjoy and trade well

mp

I've just read your "help for newbies" thread and as I found out that you've written a story about me I wish I would have found this one earlier.

Wise words and insights

The only point I always had been aware of was MM. From the very beginning I had my script to place a virtual SL line and any order script calculated the volume allowed with the adjusted risk and this virtual SL becomes the SL once the order is placed. Sometimes I am online with UMTS and therefore I would not allow an order to be placed without an initial SL, because sometimes it happens that the connection drops and a free running order would be on the table until reconnected.

I started live with 4 losers in a row, which now I am sure was the best start I could have, because the MM will never be questioned anymore.

My approach to master the mental aspects is that in any situation I know that nothing more than 2% of my account can be spent at any time at any trade. It would need 34 loosers in a row to cut the account down to half the size and at the same time this should be a sign for other actions than press buy or sell.

Yet a simple math for becoming rich with only risking 2% each trade. Lets assume your edge has an average R/R of 2:1 and a win/loss of 50:50. That means over a series of trades for each loss of 2% you're getting in 4%, makes 2% net. If you are intraday trading and make 2 trades a day, 4 days a week you will increase a starting balance of 200€ into an end balance of 550.000€ after 2 years. With a starting balance of 1000€ you would hit this target already in 80 weeks. This way gives me also the confidence to learn how to deal with the big numbers one day, because I will never change my risk setting and therefore I grow with the numbers, losses as well as profits.

I don't know if my assumed R/R is realistic for intraday because I am on Daily and 4H and with this ratio I would not even think about pulling the trigger.

This are vast amounts of money - at least for me and probably for anyone asking questions on FF, maybe not for the ones giving the answers - but I need the patience to accept the very slow growing equity curve at the beginning, but at the end I will have a monthly income which would far outweigh every job I can get. This business would give me the freedom I am worth to have, removes the dependencies from employers which I don't like to have and since I am learning already for all of my life it makes no difference for me if I reach this freedom in 1 year, 2 or 5 years, because I don't question it anymore that I will reach.

Good trading to all.

Just one message like this makes the time I put into the thread worthwhile.

You're absolutely on the right path and when your account is in 6 figures and you've gradually come to terms with the difference between a penny a pip and $100 pip you'll still be relaxed.

Nice post.

This skill is in my opinion the hardest to acquire and the most essential if you want to be successful as a trader because this mental skill requires all the other subsequent psychological contradictions and wrong beliefs to be solved before you will reach this level of probability. Successful is in this context meant as a steadily rising equity curve.

To reach this level it is not enough that you know that your edge only over a series of trades will win, it is the mental skill that you got the belief in probability to a functional level.

This belief is so hard to establish, because it contradicts with everything you learned before, that is you simply have to be right in every decision to be successful and not to be hurt, either physically or emotionally. In trading the exact counterpart is true, that you CAN NOT and NEED NOT be right in every decision.

Imagine following trade, you have an uptrend on D1 and currently a retrace to the bottom TL and a confluence with a round number and maybe also with a 50 fib level and your edge gives you the signal to buy, but on the other hand the central banks may be thinking that there is some imbalance between the currencies which you were not aware of and the correction continues down, maybe even reverses the global trend.

Think of the following points if you strictly followed your system:

What CAN be blamed on YOU in this situation:
- If it goes up and you're not long, because another pattern with the same outline teached you wrong before.
- If it goes down and you're long and don't have a SL in.

What CANNOT be blamed on YOU in this situation:
- If it goes down and you're long and your SL is hit, because you did the only right, your system told you to catch an opportunity and you did. At this point there was no way to know that there are no other traders which think same you, that the price is low and someone will buy at a higher price than you did. At least no one with the volume which actually would cause a move in your direction.

If you don't have an edge and let your stomach give the signal that all variables - which the stomach chooses randomly - point to a high chance winner you make two fatal mistakes. The first is that you get into a trade to which you have an emotional relation. The second one that your randomly chosen variables will override the laws of probability.

Monitor yourself and watch if you find yourself thinking whether the system tells you right, the setup is good or whatsoever. If you do you don't belief in probabilities. If you don't belief in probabilities you will give away your equity to the ones which actually do. If you can't learn to belief in probabilities and worse you don't like to learn to think in probabilities, then stop trading now, because the longer you continue the longer your funds will fall.

What helped for me was also a move to the higher timeframes. They make it easier for me to get a good risk/reward ratio. This is a good approach for me to draw out the energy from the belief to be right and transfer it into the belief that the probabilities will teach you right. This is because on an average R/R of 1:4 you just need to have 25% wins to break at least even. It is therefore a good way, because the missing belief in opportunities will reduce the possible win/loss which your edge would have if used to its full potential, but you might have enough winners to avoid blowing your account before you might gain the trust over your trades that in fact of the truth that 75% losers still kept you above the water and the belief in probabilities has a change to establish.

As an example for the lack of mental skills you compare a demo and a live account, which you traded with the same edge and hopefully with the same initial balance. The more the balance of your live account is below the one of the demo account, the more you lack of mental skills, excluding facts like you have had an MA crossing system on demo in a greatly trending period and went live in a phase of consolidation. But this is only the next skill you have to get, that you find the weaknesses of your system and stay out of market situations where your system increases generating false signals or at least scale back.

If you once will have the belief in probabilities you still have to keep monitoring, because now it is a dangerous point to get reckless. Signs of such are trying to increase your risk level or if you always had series of 20 trades which all ranged in a small win/loss ratio window but now one series falls significantly out of this range. This may be overconfidence, greed or recklessness. This process can only quit itself over the time, because after years the usual behavior of humans kick in, that is that most of the humans do not like to change things or in other words the don't change a running system mentality has gotten you.

In my opinion this is the point were you can yourself name a trader, fully mastering your system and hang on to nothing than your system. You have the immunity for every spoken or written word which would alter your system.

Good trading to all.

Hi all, I've just joined this forum today as a complete noob to forex and just wanted to say thanks to PeterFM for the superb thread for newbies, without which I wouldn't have had a clue where to start.

I only became interested in starting to trade forex around a week ago so I guess I'm about as fresh as they come in terms of rookies . Due to the wealth of information out there on the Internet, its often difficult to separate the wheat from the chaff so to speak, so I'm really happy to have come across Forex Factory so early on in my travels as I truly feel there is no other forex community like this on the web. Maybe its just beginners enthusiasm but from the few hours that I've spent on here thus far I already feel like I've learnt so much and just want to keep reading more and more. I can see this place becoming quite addictive...

I hope your ready for the journey........

Ive got an idea, why dont you start a journal now and document each thing you try and each thought about the market you have. Im sure people will drop in and give opinions, alot of opinions around here.

Would be interesting from my perspective to see a complete newcomer and the steps he takes.

Leon

PS. Where in the UK are you?