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Myth Busters the Forex Edition

  • #61
  • Oct 2, 2009 7:05pm Oct 2, 2009 7:05pm
In my opinion FX is all about S&R like in all other biz.

You can't sell a laptop in 2000$ if there is a competence with an offer of 1200$ for the same puter, that would be the resistance of the price of this good.

Here you have a screenshot of S&R HLs which I update when necesary (only one line was added), the first I posted some time ago as an update in Bemac's ICCE thread, the second is the continuation.

Now guess what I do when PA hit these levels.
Attached Image(s) (click to enlarge)
Click to Enlarge Name: icce73.gif Size: 31 KB
Click to Enlarge Name: icce78.gif Size: 36 KB
  • #62
  • Oct 2, 2009 7:27pm Oct 2, 2009 7:27pm
@Craig

thanks
  • #63
  • Oct 3, 2009 4:27am Oct 3, 2009 4:27am
Quoting giraia_br
i aways tought it was possible but it is rare to see experinced traders like you supporting the idea.
I agree with Craig on this one too. It's quite easy to prove, let's take the following example:

Algo makes all it's trades totally random.
At those points where there is better expectation of price going up than going down, the system uses bigger risk on long trades than on other points. Vice versa for shorts.

There. You have a system with positive expectancy even while the entries are random. Nothing prevents you using the same kind of risk adjustment for real systems (I might or might not use this kind of system in my real trading)

My main point is that if you know when the expectancy is something other (higher or lower) than random, you can alter your risk there even though the system you use is still the same and get better results than with original system.
  • #64
  • Oct 3, 2009 5:25am Oct 3, 2009 5:25am
You need only one thing in Forex to be profitable: YOU NEED AN EDGE. A PROVEN MATHEMATICAL EDGE.

To quote Metallica or Saint Augustin, "Nothing else matters".

The casino is winning because it has a system with an small edge in its favor.
Not because it has mindset. Or psichology. Or it reads Douglas.

Now, the only person on this forum who is trying to explain this is hanover. I will humbly attempt to join him.

If you have an edge you can forget about all the words which cannot be measured: rythm, dance, mindset, price action, trading in the zone, art of war, generals and soldiers, confucius, buddha, zen, sun-tzu, impatience, greed, fear. If you don't have an edge all of these are useless, good maybe for your self-esteem. They are myths, nothing else.

What is an edge?

To have an edge means that over 100 trades you will have a profit. And the next 100 trades will show the same kind of profit. And you must find a way to prove it. You should be confident that your way of trading will show profits.

How can you prove it?

Only looking at the past and entering the trades using written on stone rules.
You write your rules. All of them. And then you go back one year and you enter all the trades according to them. And I mean ALL. Don't skip any of them. Does your system show profit after one year? How big? What's the biggest drawdown if you risk 2-3% per trade? Is it bigger than 30%?

What are you doing next?
One year you will use the same rules. But you are now confident that you use something you have tested.

Will it work?
You don't know. But you can be sure that it will not completely fail.
  • #65
  • Oct 3, 2009 6:07am Oct 3, 2009 6:07am
Quoting dreeamer
If I may add, I agree it is a shame when people are so close minded. It would be a superb outcome if the open minded philosophy of "let's have a good critical consideration of this new bit of information and perspective that this person has built from their experience" was more common.

It is good to have healthy skepticism, but it is also so much easier to learn from others' experience where possible, so not to have to repeat their mistakes yourself to gain that same valuable experience.

The problem with that is on this site is, the people you are learning from are only disclosing there profits not there losses and sadly there losses are normally 2x's there profits, standard human fault, yeah made $20 YES getting there, then lose $100 and forget that.

Take Fib lines or pivot points they have @20% hit rate, ie random chance nothing more, no where near enough to profit from, but the 80% of fails are ignored and people keep using them and preaching them to others.
Nothing to it, but to do it!!! Stick to the plan FOOL!!!!
  • #66
  • Oct 3, 2009 8:43am Oct 3, 2009 8:43am
Quoting eclayf
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...
This is the best post i've ever read on FF
  • #67
  • Edited 11:00pm Oct 3, 2009 2:44pm | Edited 11:00pm
Quoting Sauron
.......Now, the only person on this forum who is trying to explain this is hanover.....
Sauron, thanks for the honorable mention.

I see a small but significant difference between casinos and money markets.

In casinos, the probabilities are fixed, and can be calculated in advance. Provided that the house rules, number of decks, etc remain the same, the probabilities for every possible Blackjack play will be the same in ten years' time, as they are now.

Markets are driven not by mathematical rules, but by collective belief systems that create orderflow. Shifts in economic, political and technological climate can result in belief systems gradually changing over time. As a result, nobody can state with absolute certainty that the way in which price behaves around support/resistance (for example) ten years from now will be exactly the same as it is today. Moreover, nobody knows who the participants in the market are at any given point, and where their sentiment lies. And markets are vulnerable to 'black swan' events (although a system's risk management should make allowance for that). My point is that these underlying drivers mean that market probabilities are vague ('fuzzy') at best, and that introduces an additional level of uncertainty.

There are 'mechanical' and 'discretionary' approaches to trading. Some traders treat trading as an art; some as science; some methodologies employ a mix of both. A mechanical trader has his entry, exit and sizing rules written down, and follows them to the letter, just as you describe. However, a veteran discretionary trader simply 'knows what he's doing'. He sees a pattern, for example, and his experience gives him a 'feel' that price will behave in a certain way more often than not; then he manages each outcome (trade) accordingly, as he interprets and reacts to the subsequent price action. He may not be able to express his method in strict mathematical terms, but his growing account proves that he nonetheless has an edge. There are a lot of successful traders who operate in this way.

Apart from that, I think you've interpreted me pretty well, LOL.

I think that many of us start out wanting to trade mechanically. I know that I did. Human nature seeks security in certainty, and a rigidly rule-based approach creates the impression (whether rightly or wrongly) of some kind of 'certainty of probability'.

Irrespective of whether an approach is mechanical or discretionary, an edge will always be reflected in the results: annual return, profit factor, maximal drawdown, average win size, win rate, etc. Results give an accurate measure of expectancy (within statistical error), and a strictly mathematical interpretation is perfectly valid, IMHO. Like you say, you'd expect to see a profitable result over every 100 trades.

And money management (i.e. establishing optimal position size and method) is a purely mathematical exercise, no question.

In a casino, the dealers and croupiers must play the game according to the rules, hence there's no opportunity for the house edge to be squandered through ill-discipline. With trading, the need for psychology and 'art of war' type talk originates from lack of confidence, IMHO. A previously tested method must still be implemented, even when price moves 'unexpectedly' against the trader during a trade, or when the trader encounters an 'abnormal' sequence of losses. That's where the fuzziness in the probabilities can play on one's mind, and test one's mettle. Discipline is the product of confidence, and confidence the product of experience.

As has been said elsewhere, ill-discipline can often be the result of a futile attempt to implement an impotent methodology, rather than the other way round. Faulty MM and ill-discipline will deplete an account more quickly than a poor method, but without some kind of methodological edge (and preferably one whose underlying rationale is grounded in provable market behavior, beyond mere numbers) one is ultimately doomed to fail.

There's a good explanation of what's required from an edge in this post. And re system development, there's an excellent post here that might be of interest to you. There are definitely other contributors here who think beyond "it's all about mindset and self-mastery". (Assuming that I understand them correctly, I recognize at least three who've already posted in this thread). We are not alone.

How does this post relate to the original topic? Well, the notion that FF threads stay unswervingly on topic is yet another myth.
  • #68
  • Oct 3, 2009 4:08pm Oct 3, 2009 4:08pm
Quoting >Apocalypto<
Some excellent posts already.

one thing I see a lot, is the myth small accounts are enough to trade full time.

cheers
I agree 1000%. In some countries, it might not take as much.....but truth be known, most Western countries, it's going to take a lot to live off of it.

If you live in rural Africa, maybe a 10k account is enough? But I do know that the ridiculous expectations are really, really, really dangerous.

Chris
  • #69
  • Oct 3, 2009 4:58pm Oct 3, 2009 4:58pm
Myth: You can buy comerical EAs which will make you money on the long run.

Fact: Markets change. Just open a EURUSD Daily Chart and look at it. There is no way some black box system will work under every market condition. EAs do work if you know how and when to trade them and when you need to make some adaptions. But you won't just get something like a cash generating screensaver anywhere on the internet where you simply have to hit "GO" and lean back.
  • #70
  • Oct 3, 2009 10:45pm Oct 3, 2009 10:45pm
Quoting Tjpld
Myth: You can buy comerical EAs which will make you money on the long run.

Fact: Markets change. Just open a EURUSD Daily Chart and look at it. There is no way some black box system will work under every market condition. EAs do work if you know how and when to trade them and when you need to make some adaptions. But you won't just get something like a cash generating screensaver anywhere on the internet where you simply have to hit "GO" and lean back.
A good post

Commercial black box Ea's. Been there. Done that. Tried to get refund.
  • #71
  • Edited 3:04am Oct 4, 2009 2:46am | Edited 3:04am
I meant that we should behave like the casino and the markets are the players. The markets always want to play but we decide if we accept them at our table, and only when the odds are in our favor.

Regarding the traders which enter traders according to their feeling and they show profit, I want to add that their methods are not teachable. There's no way to know everything they think before a trade and of course their experience will never be available to others. For this reason I think they can't help others becoming profitable by posting on this forum, only if they take somebody as an apprentice.

Let's take PeterCrowns and his DIBS method. By taking all the trades according to his rules you'll find yourself at best at breakeven on the long run. I've made a test and actually the contra trend trades would show more profit than those using trend continuation!
Now, if he is profitable, he has a way of filtering trades which he doesn't disclose. Maybe the filters are his own judgment and experience and the other try in vain to find some miracle SMA which will act as a filter.
  • #72
  • Oct 4, 2009 3:43am Oct 4, 2009 3:43am
Quoting Sauron
I meant that we should behave like the casino and the markets are the players. The markets always want to play but we decide if we accept them at our table, and only when the odds are in our favor.

Regarding the traders which enter traders according to their feeling and they show profit, I want to add that their methods are not teachable. There's no way to know everything they think before a trade and of course their experience will never be available to others. For this reason I think they can't help others becoming profitable by posting...
I agree totally with your casino analogy.

I also followed DIBS for a while, and couldn't make it profitable for me. I also felt that Peter was withholding information, and I posted about it here. But the DIBS thread has survived the test of time, hence I assume that others have somehow found a way of making it work for them.
  • #73
  • Oct 4, 2009 5:10am Oct 4, 2009 5:10am
Another thread with a lot of replies was that of Phillip Nel, how to win at least 300 pips a month on EURUSD using a 4H MACD strategy and maximum 50 pips stop loss.

Now, if one can do this than he should be a billionaire in 3-5 years, starting with no more than 10.000$. Very interesting is that Phillip found a way to make money by selling other systems invented by him, which too show an abnormal level of profit / stop loss.

Considering that the developer of the that strategy couldn't make it profitable, what is the chance that others can profit from it? Nobody came (as far as I know) after 3 years and said that using that strategy they made this and that profit.
I just want to emphasize that the number of replies of a topic are not a proof that somebody uses that strategy with success.

If the strategy is simple (as it is DIBS) a lot of people will gather to follow it. A few of them will have 3-4 winnings in a row, by sheer luck. From that moment on they will follow it religiously but sooner or later 5 losses or more in a row will destroy the spell.

This brings me to another point, that a strategy shouldn't have a lot of losses in a row, doesn't matter how small they are. Because the trader should adjust the lot size after every loss and the next winning must be bigger than normal just to arrive at breakeven. There's a myth that taking a lot of small losses and waiting for some big winnings from time to time will make somebody rich.
  • #74
  • Oct 4, 2009 5:22am Oct 4, 2009 5:22am
Quoting Sauron
There's a myth that taking a lot of small losses and waiting for some big winnings from time to time will make somebody rich.
That's not a myth, it's just a strategy that you are not using. win percentage is actually pretty irrelevant.
  • #75
  • Oct 4, 2009 6:05am Oct 4, 2009 6:05am
The threshold is around 35% which means you should win at least 3-3.5 from 10, excluding breakevens. If you win only 2 from 10 trades chances are that you have very often 20 losses in a row. In this case you can't afford to risk more than 1% from your account per trade. And the winning trade should be at least 10 times bigger than the average loss, just to make it to breakeven.

Is it possible? Maybe. But I don't know any succesfull trader who makes it.
  • #76
  • Oct 4, 2009 6:18am Oct 4, 2009 6:18am
Quoting clockwork71
I agree 1000%. In some countries, it might not take as much.....but truth be known, most Western countries, it's going to take a lot to live off of it.

If you live in rural Africa, maybe a 10k account is enough? But I do know that the ridiculous expectations are really, really, really dangerous.

Chris

That myth is actually the myth, you can make a living off a small account but it's harder ofcourse, people have turned relatively small sums ie £1000 into 1Mil in a year or 2, and 999,000 over ever 10 years would be considered a living.

Not everyone needs to make 10K per month, keeping life style similar £800 per month would do me okay.
Nothing to it, but to do it!!! Stick to the plan FOOL!!!!
  • #77
  • Oct 4, 2009 6:24am Oct 4, 2009 6:24am
Quoting Sauron
The threshold is around 35% which means you should win at least 3-3.5 from 10, excluding breakevens. If you win only 2 from 10 trades chances are that you have very often 20 losses in a row. In this case you can't afford to risk more than 1% from your account per trade. And the winning trade should be at least 10 times bigger than the average loss, just to make it to breakeven.

Is it possible? Maybe. But I don't know any succesfull trader who makes it.

Why I've only been working towards 70%+ profit rate ( not win that would imply gambling ) method ( not system as systems don't work ) and I only try to take trades which make 2 - 3x's the SL level, you crack this and yes it's a license to print money especially traded at 5% risk!!

This has been in the making for years, I think i'm nearly there, but nearly could easily be another year from this point.
Nothing to it, but to do it!!! Stick to the plan FOOL!!!!
  • #78
  • Oct 4, 2009 6:30am Oct 4, 2009 6:30am
Quoting Turveyd
That myth is actually the myth, you can make a living off a small account but it's harder ofcourse, people have turned relatively small sums ie £1000 into 1Mil in a year or 2, and 999,000 over ever 10 years would be considered a living.

Not everyone needs to make 10K per month, keeping life style similar £800 per month would do me okay.

To make 800 GBP a month on average over 2-3 years you'd still need a pretty decent account.

I've heard some people turned their 3 USD in to millions with a lottery ticket...
Pointing out exceptional returns that one out of 500k traders may experience in his lifetime because he got lucky does not help anyone.
Keep it realistic.
  • #79
  • Oct 4, 2009 10:55am Oct 4, 2009 10:55am
Quoting Turveyd
That myth is actually the myth, you can make a living off a small account but it's harder ofcourse, people have turned relatively small sums ie £1000 into 1Mil in a year or 2, and 999,000 over ever 10 years would be considered a living.
It is possible, I don't deny. By sheer luck and 10% risk per trade you can multiply your account 30 times every year.
In the same way you can go to a roulette wheel, hit the number 2 times in a row and you've reached your goal. For every 1000 people who play roulette one will make it. And one needs 5 minutes, not 2 years as in forex.

If you can prove that you can make "only" 100% yearly with 1% risk per trade there are banks or trading firms who will pay you 6 digits salary monthly. You will not write on forums about trading but you'll be searching ways to spend that amount. Nobody here doubles his amount every year with 1% risk.
  • #80
  • Oct 4, 2009 11:04am Oct 4, 2009 11:04am
Quoting Sauron
It is possible, I don't deny. By sheer luck and 10% risk per trade you can multiply your account 30 times every year.
In the same way you can go to a roulette wheel, hit the number 2 times in a row and you've reached your goal. For every 1000 people who play roulette one will make it. And one needs 5 minutes, not 2 years as in forex.

If you can prove that you can make "only" 100% yearly with 1% risk per trade there are banks or trading firms who will pay you 6 digits salary monthly. You will not write on forums about trading but you'll be searching...
Study the market, learn how to trade, then you too will be able to make 100% in one year risking only 1% per trade! There are thousand of traders that do it, and banks or trading firms are not soo easy to be reached as you say..
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