Myth Busters the Forex Edition

I have an agenda here and that is to:

1. Dispel all the BS about trading Forex
2. Hopefully give a little back for all that I have gotten from this forum
3. Amusement

I do expect this to be a civil respectful discussion.

Hahaha great idea

Lets start off with the easy stuff.

Technically this is true I have attached a spreadsheet that you can play with to project your profits, the fields in red are configurable.

The reality of this is that this is only achievable through a lot of screen time, experience and mental conditioning. Anyone that tells you otherwise more than likely has something to sell.

Yeh I think the problem too is that people might think they have an edge in the market, but they don't really have one at all. I have bought 2 courses I know in hindsight would never of worked because there is no method or edge in them (should I name names?) Education is a big problem, but it is a financial market and there is no free lunches. Or many paid ones it seems. How can one determine the mental aspects if there is no objective foundation to weigh it against?

This is actually one of my favorite myths because it is bandied about here on ff so often. I will discuss this myth over the course of several posts.

The truth here is that learning to trade is a skill just like any other and must be learned and honed to perfection. The problem here is that most people don't really put in the time to learn the mechanics of how to be a good trader and more importantly don't really recognize their own self defeating characteristics:

Believe it or not the edge is you. There are lots of great systems out there the problem is that unless you are using some sort of mechanical strategy there is a certain amount of discretion required that the system "creator" is not always able to convey so you have a lot of systems out there that have mixed results. When I started out I did what you are doing, I was looking for someone to give me the "edge" and tried book after book after system after system only to find that I could not get "it". It was only then that I decided I had to build my own system and approach so I used some of the tools I had picked up before (price action, support resistance, moving averages
as floating support resistance, stochastics) to develop a method that I can trade with good success. Most people are not able to mimic someone else's system and almost always add in some of their own elements and end up changing the base system.

I agree with everything you say, however I think discretion is an easy rock to hide under. An edge is something we can know and is definable (quoting Mark Douglas here), whether or not people can actualise it into words. It then takes the mental makeup to trade the edge effectively. We have to do the right thing 100% of the time to get our 80% results (or whatever) don't we?

So, yes I would say the trader is make or break in the success equation, however, how is the trader giving a higher probability of one thing happening over another in any moment? (Again quoting Douglas.) Are you saying (and I'm not being facetious here) that the trader is psychically connected to the market? Maybe the trader is allknowing and allaware? This really is the only possibility for an answer if thats what you believe, or else you would have to define your edge rationaly.

I am really seperating edge from the psychological tenacity required to be a successful trader. They are clearly two different things.

I guess this is a common myth, people are so quick to sell themselves out and believe that they are causing the losses or whatever, but I would say that most of the time there is no edge in their method whatsoever.

My point is your edge is not only having a system you have confidence in because you know when traded by your rules it has a positive expectancy but also the mental ability to follow it through to profit. I think the whole thing about the edge being some sort of do this do that system is a red herring and causes a great deal of harm to traders accounts.

Trading is about knowing the tools to use for the market you are in (trending, or ranging) along with the trader being able to establish the trade and the mental capacity to follow it though to profit. Lets not forget that 2 traders can take the exact same trade for the exact same reason and have different outcomes.

Some excellent posts already.

one thing I see a lot, is the myth small accounts are enough to trade full time. IMO you need 100K + to do it.

50K maybe, anyone start on 50K and make it longer then 6 years full time?

cheers

there are enough mechnical systems out there which put you on the right side of the trade for more than 60%..then it comes to mm, profittaking and stopmanagement. it is about sticking to rules and mindset.
the psychological aspect is, if you put two equally experinced traders next to each other- both with an "edge"...what makes the difference between the one doing ok or b/e and the millionaire.
the longer you are in this business, the clearer it gets that you also need to do some work on your mind, be it a trading psychologist or something you are able to do on your own, to evolve to the next level. of course, not everybody needs it but e.g. in terms of hedgefunds, you will seldom see anybody who does not constantly work on his mind.

since we in trading are emotionally connected to our money, also our decisions are led by emotions and with a big amount of the unconscious inner self of us who wants us to fail.

with experience you will begin to realize that you are really the holy grail and the mind has to be spot on- if not, the best system lets you fail.

I think how much you need varies from trader to trader and system to system, ie some systems require far more draw down than others. I don't think you can take a small account and trade it for a living right off the bat. I do think you can take a small account and through careful trading compound that into something that you can support yourself off of. Can you make a living in the US off of a 1K account right off the bat, no way. Can you make a living off of a 5K account maybe if you are a dam good trader and you don't have any expenses.

Personally I think if people stop thinking about trading full time and just focus on trading well there would be far more more people trading full time.

Wtf? Our inner selves want us to fail? Uh, what? If this is your belief, then for you it will be very real.

No this was not your point, you said that the edge is the trader. I said that the two (edge and mental acuity) are seperate, but success cannot come without both.

For most newbies it's the attraction of easy money that brings them into this arena in the first place. The promises offered by the snake-oil salesmen are still ringing in their ears even if they are lucky enough to find some sort of way forward on their own.

The fixation with how many pips each successful trade brings overrides the impact on the % growth their methodology has on their accounts. I'm running a demo, alongside my live account, and am testing my ability to grow this new account at the same rate as the live, the difference is I'm only using 1 micro lot and focussing on producing as high a level of winners as I can. The growth of the demo fund will take care of itself if I can be ultra-selective in the trades I take and treat it just as if it was another live account.

If you can make yourself trade with discipline on a demo account you have a better chance of surviving when there's real money on the line.

Great post Josh,,, really, really like the tenor of this one. Hope you can maintain control of this thread a bit better than some have their threads.

There are so many myths in trading.

The "myth" of time frame is one of the worst. There is NO time frame in trading, only the way we look at and segment it, which becomes a self fulfilling prophecy as well.

The "market" only knows when it opens and it closes, other than that, there is no "time frame" only the individual trades and the way we break them into segments we can understand and even these are merely "visual aids" for traders.

For the most part I have found trading to be an arena filled with tons and tons of “self-fulfilling prophecies.” For example, Fibonacci lines work because so very, very many people use them, but they often fail as well because some larger player moves the market or some other influence does. Yes, it is a "law" in nature, but when applied to the markets they often fail like anything else does.

Support and resistance lines are pretty much the same. Everyone expects them to work, so they do most of the time. There is nothing magical in any of this, just plain old human psychology at work. Fear keeps people trapped and makes certain levels stronger than others. Greed does much the same just in a different way, so price often "explodes" through an S/R level. "Round Numbers" do the same thing for the same reasons.

If you watch price action around Andrew's pitchforks, you will see the exact same sort of movement as you do around longer term Moving Averages. Nature loves a balance and people instinctively understand that. As a result traders "expect" price to return to the "median" or to seek it's "balance" though there is no "rational" reason for this other than it being a self fulfilling prophecy.

What goes up must come down, everyone knows that! Inertia keeps moving objects in motion and resists objects at rest from movement. Everyone knows that too!

Life is filled with cycles, which scientists now call “circadian rhythm.” Night and day, rise and fall of the tides, sleep and waking, excitement and depression. Everyone knows this too!

Fractal technology is the science of how larger things are built on smaller things. Just look at a tree. One line “branches” into multiple lines and eventually we have the shape we recognize trees to have, both in branches and roots.

People have been trying to apply all these principles in differing methods to the markets from when the first market place was ever created. Just look at how long Japanese kept records of the rice markets with candlestick charts. The same is true of the grain markets in more European areas, just not with candle sticks.

The whole point in all this is that life is built on self-fulfilling prophecies and expectancies. So are the markets. It really is that simple. Yet everyone wants to try to make it complex and difficult to understand.

Trading is no more difficult than finding one or more of these that you can understand, “see” clearly on a chart and trade effectively. That then becomes one's "edge." It's really more like a dance than anyone wants to admit.

There is an old country western song that says, “One step forward and two steps back, no one gets very far like that.” BUT, that is not true.
In a dance there are two partners. One leads, one follows. For the most part the “male” leads and the “female” follows. She is traveling along in the dance just as fast as he is, only she is doing it backwards! She is also taking all of her “cues” from him. Without both partners there would be no dance.

In trading, the market is the “male” and traders are ALL “female” taking their cues from “him” AND, they must do it in response rapidly and backwards.

If one over analyzes a dance technique they mess it up, the “flow” of the dance suffers and sometimes they even get hurt. If they don't understand the cues the same thing happens, only often it's worse . Trading is no different.

You could also compare it to a video game. There are rules to play by and when you learn them, it becomes very simple to "win" or at least play really, really well. There are rules as well in the markets. Those "rules" area all based on these self fulfilling prophecies of human psychology. Learn a few that make sense and you can play the game really well too.

One last thought about these "self fulfilling" prophecies where individuals are concerned. Everyone grows up in life with certain "limits" imposed on them by those raising them, and then on those they surround themselves with and those they look at as "authorities" in any area. These limits then also become self fulfilling prophecies.

I once has a "boss" tell me that the only reason I wasn't capable of making a six figure income was because I never had. It made no sense to me at the time, but man was he right. People all around me in the field I was in were making six and seven figure incomes and I was struggling to make the mid fives.

Then, something miraculous happened, I hung around them long enough to learn to get past that personal limit and the day came that I had way more than six figures in my bank account.

I eventually lost it because of the market crash but am in the process of regaining it and much more. All because I realized I did not have to live with that self fulfilling prophecy in my life.

You can make a strong living with only a small account to start with. It may take a while for you to get to the point you believe that, but once you do, it WILL happen. Keep at it long enough and you will ultimately bcome very wealthy. It depends on what you are willing to believe and what you are not willing to believe.

So, learn to dance. Learn to take cues from the market and just have fun!

Clay

btw, thanks for helping me get to the point that I am finally consistent in my trading Josh!

sorry mate I don't agree.

i have seen many try (in the last bull market) and the horror their lives turned into, hence my post.

Please what life has no expenses??? lets keep this on reality............

the issue is emotions, even the great traders have terrible months. I know a (very well, mentor level) guy that trades for living in phuket thailand level 3 cfa ex head of currency trading desk of a UK investment bank. trades on short term with market profile in Fx and futures with long term Elliot wave with time cycles.

even he with 20 years experience and great size account had a patch that really tested him.

I asked him once if 10K was enough he told me "forget it".

if you try it on 10K and make it past three years please write a book and sell it to me.

hmmmm...............

wtf is all you have to say? wow. respect to you
it has nothing to do with believe, nor is it real for me kid. this is a known fact in psychology.

great to see some real traders in here making points hard for some to digest.

one of the many things i learned from trading in the zone, we have internal image of self wealth this is subconscious and when we exceed this we return to normality. we as traders have to change this level to except the new levels of wealth we receive.

Dr Geppynius,

I agree , excellent post!

short and to the point! pretty good summary.

if you have not yet experienced such things yourself, you might just want to be ignorant and judge this as nonsense. it will only be to your disadvantage, we just try to help.

collect your own experience and perhaps you come to the point- if not counting to the 95% of the rest-, that you are pretty spot on in marketreading and trading profitable.

when you are at the point that you see trades develop, which you just do not take, even tough you know this has to go in our way 90+ %, and if not, you'd only have pretty little risk, but you do not take the trades day after day, it can get you crazy, seeing tons of money passing by when most of the calls you made hit it- even forecasting spikes.
i have been at the point where i began not taking trades as i should even tough i made the calls and it had nothing to do with systems failing (from the beginning i never liked any indicator systems btw.).
it is all about the own mind and in which way your (unconscious) mind manipulates your trading. this is the only thing which prevents you from making an assload of money in the end.

To each their own and you are welcome to disagree, but not only is it possible thats how I started trading and I am a bit over 3 years at this. Do I have days where my head gets in the way of course, do I have bad weeks yep.