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Myth Busters the Forex Edition

  • #81
  • Oct 4, 2009 11:38am Oct 4, 2009 11:38am
Do you know personally those thousands of traders?
I mean, if they start with 16k they should be millionaires after 6 years. And billionaires after 16 years.
Or, if they are really good, they could go for 2% risk and they will be billionaires after 8 years.
  • #82
  • Oct 4, 2009 11:44am Oct 4, 2009 11:44am
Quoting Sauron
Do you know personally those thousands of traders?
I mean, if they start with 16k they should be millionaires after 6 years. And billionaires after 16 years.
Or, if they are really good, they could go for 2% risk and they will be billionaires after 8 years.
Sorry for my rude in the last post, i don't know a thousands of traders personally of course (and i don't want to), but i can assure that make 100% yearly with 1% risk trade is not an hard thing if you know what you do, anyway yes there are many millionaires traders and there are also a good number of billionaires traders too, do this sounds strange ?
  • #83
  • Oct 4, 2009 12:13pm Oct 4, 2009 12:13pm
Doubling your account every year is a very hard thing to do. Most of the millionaires traders didn't become millionaires by doing it. I think rather working for some firm where 50% a year was considered a very good return and they received a nice bonus.
Waren Buffett made in average 25% every year, according to this forum he is one of the worst traders who ever lived and didn't go bankrupt.
  • #84
  • Oct 4, 2009 12:19pm Oct 4, 2009 12:19pm
Quoting Sauron
Doubling your account every year is a very hard thing to do. Most of the millionaires traders didn't become millionaires by doing it. I think rather working for some firm where 50% a year was considered a very good return and they received a nice bonus.
Waren Buffett made in average 25% every year, according to this forum he is one of the worst traders who ever lived and didn't go bankrupt.
he is the worst trader but he didn't go bankrupt? http://kedaii.com/FS/images/sarcastic.gif

what is the word for more then wort traders who go bust?
  • #85
  • Oct 4, 2009 12:23pm Oct 4, 2009 12:23pm
Warren Buffet is an investor, not a trader. In the past he has invested in currency though. Just thought I'd point that out.

There's a big difference between an investor and a trader.
  • #86
  • Oct 4, 2009 12:23pm Oct 4, 2009 12:23pm
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.

Where in the UK do you live? £800 would be great while living with my parents, but your actually poor attempting to run a house on that EVEN in the north.
Living the adventure in my head.
  • #87
  • Oct 4, 2009 12:25pm Oct 4, 2009 12:25pm
True, in fact Warren Buffet had only losed money in forex, actually something like 1mln/day, trading forex and making long-term investments in the stock market are 2 totally different things, warren buffet is a good investor of course, but maybe he's not a good fx trader at all..
  • #88
  • Oct 4, 2009 2:54pm Oct 4, 2009 2:54pm
Quoting mikkom
That's not a myth, it's just a strategy that you are not using. win percentage is actually pretty irrelevant.
With respect, I think there are other considerations:

1. Profit factor (aka expectancy, EV): the ratio of [net $$$ won] to [net $$$ lost] accounts for both win rate, and average R:R. A system with > 1 has positive expectancy, and will (at least, mathematically) make money over time. Depending on the average R:R, both systems with high and low win rates can be profitable, e.g.
System A: 60% win rate; average 1:1 RR; EV = (60x1)/(40x1) = 1.5
System B: 30% win rate; average 4:1 RR: EV = (30x4)/(70x1) = ~1.71

2. Risk of ruin: as Sauron points out, a lower win rate increases the probability of losing sequences. See the table attached to this post.

3. Consistency of income: if trading is one's sole source of income, win rate assumes increased importance. Given its higher EV (and assuming everything else is equal), System B will outperform System A over time, but if the trades are infrequent (e.g. average of 2 per week), then 8 consecutive losses would mean negative income for 4 weeks, while still having to pay one's bills, necessitating careful budgeting. From the table, the probability of 8 consecutive losses within 50 trades at 30% win rate = 92%; at 60% win rate it is only 3%. (But if we were averaging 2 trades per day, then 8 successive losses would mean negative income for only 4 days, which is much more palatable).

4. Hence frequency of trades is also significant, both in terms of consistency of income, and also in terms of annual return. Let's say that a system averages a return of 1% every 5 trades: obviously turning over those 5 trades every week would be massively more preferable (assuming that was possible) than 5 trades per month (compounding 1% weekly over 52 weeks = ~ 68% p.a.; 1% monthly over 12 months = ~ 12.6% p.a.)

5. A lower win rate necessitates greater patience, and is more difficult to stomach psychologically (agreed, this shouldn't be a consideration, but.......).

When I first began my study of trading, I assumed that the 'Holy Grail' would be a system that maximized return while minimizing risk. To some extent that's a myth (back on topic ), or at least an unrealistic expectation, because I've come to realize that to increase return one has to in some way increase risk. The ultimate system/approach is one that balances return, drawdown and consistency of income, in a way that rests comfortably with a trader's temperament, financial objectives, and lifestyle.
  • #89
  • Oct 4, 2009 3:27pm Oct 4, 2009 3:27pm
You wouldn't like to do my Tax Returns would you? I reckon you could save me a few quid each year.
  • #90
  • Oct 4, 2009 3:31pm Oct 4, 2009 3:31pm
Quoting hanover
1. Profit factor (aka expectancy, EV): the ratio of [net $$$ won] to [net $$$ lost] accounts for both win rate, and average R:R. A system with > 1 has positive expectancy, and will (at least, mathematically) make money over time. Depending on the average R:R, both systems with high and low win rates can be profitable, e.g.
System A: 60% win rate; average 1:1 RR; EV = (60x1)/(40x1) = 1.5
System B: 30% win rate; average 4:1 RR: EV = (30x4)/(70x1) = ~1.71
That was basically my point, win rate in itself is irrelevant because other factors like the average win/loss are as important and you can't tell anything from the plain win% (edit: okay maybe the irrelevant word is incorrect, what I actually mean is insufficient). However when you have other statistics or full profit curve, it becomes a totally different thing.

Anyway, I'm personally trading many systems that have a small win rate (with very high profit expectancy for winning trades) so it sounds strange that someone calls those kind of systems a myth (I also trade multiple higher win%, lower win amount systems).
  • #91
  • Oct 4, 2009 5:08pm Oct 4, 2009 5:08pm
@Mikkom: OK, my apologies, I see where you were coming from now.

@PeterFM: Thanks but...... I've got a good accountant here in NZ, I let him sort all of my financial messes out. A lot of the expectancy stuff, and its application to trading, I learned from reading Van Tharp and Ryan Jones.
  • #92
  • Oct 4, 2009 5:14pm Oct 4, 2009 5:14pm
Quoting hanover
@PeterFM: Thanks but...... I've got a good accountant here in NZ, I let him sort all of my financial messes out. A lot of the expectancy stuff, and its application to trading, I learned from reading Van Tharp and Ryan Jones.
Either you're getting too serious - or maybe I need to rethink my sense of humour, as I think my little joke may have slid over your head. I was thinking how much I envy your analytical mind and trying to be amusing.
  • #93
  • Oct 4, 2009 5:16pm Oct 4, 2009 5:16pm
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...
Not luck, natural trading aptitude for the most part ie no greed / fear emotions or kept well in check, not many of us including me have this sadly.

The Roulette Derren Brown thing got me thinking, I bet with practice I could narrow myself down to 25% of the wheel with 80%+ accuracy ( not always ), which gives me a 1:12 win ratio approx for a 35:1 payout, got to look into this, ofcourse the Casino's just black list you!!
Nothing to it, but to do it!!! Stick to the plan FOOL!!!!
  • #94
  • Oct 4, 2009 5:20pm Oct 4, 2009 5:20pm
Quoting Leonlorenzo
Where in the UK do you live? £800 would be great while living with my parents, but your actually poor attempting to run a house on that EVEN in the north.

£800 sadly is about what I bring in after costs and with all the no work slow periods at the moment, the GF has a good job though which helps.

£1200 is my goal realistically make me happy!!
Nothing to it, but to do it!!! Stick to the plan FOOL!!!!
  • #95
  • Oct 4, 2009 6:04pm Oct 4, 2009 6:04pm
Quoting Turveyd
£800 sadly is about what I bring in after costs and with all the no work slow periods at the moment, the GF has a good job though which helps.

£1200 is my goal realistically make me happy!!
800 quid A MONTH! Man, you have to raise your sights a lot higher.
  • #96
  • Oct 4, 2009 6:16pm Oct 4, 2009 6:16pm
Quoting forexmick
800 quid A MONTH! Man, you have to raise your sights a lot higher.
Most on the board would trade a nut for 800 a month.
  • #97
  • Oct 4, 2009 6:24pm Oct 4, 2009 6:24pm
Quoting GulfCoastPip
Most on the board would trade a nut for 800 a month.
I'm one of them, a guaranteed £800(inflation adjusted) per month for no effort for the rest of my life is worth a bollock. Id want it back though if anything went wrong with my other one.
Living the adventure in my head.
  • #98
  • Oct 4, 2009 6:26pm Oct 4, 2009 6:26pm
Quoting forexmick
800 quid A MONTH! Man, you have to raise your sights a lot higher.
A bit of window cleaning on the side it'll be fine ( old Ronnie's joke, annoyingly my window cleaner mate make much more than me doing IT stuff these days LOL )

Paying my way would do me, anything more can go to Mountain bike parts
Nothing to it, but to do it!!! Stick to the plan FOOL!!!!
  • #99
  • Oct 4, 2009 6:28pm Oct 4, 2009 6:28pm
Quoting Leonlorenzo
I'm one of them, a guaranteed £800(inflation adjusted) per month for no effort for the rest of my life is worth a bollock. Id want it back though if anything went wrong with my other one.

If you sell both of them you'll find you likely have much more time for trading and a improved focus and then much more profits
Nothing to it, but to do it!!! Stick to the plan FOOL!!!!
  • #100
  • Oct 4, 2009 6:31pm Oct 4, 2009 6:31pm
Quoting Turveyd
If you sell both of them you'll find you likely have much more time for trading and a improved focus and then much more profits
You could make a living as a soprano - be careful though, have you seen how fat eunuchs get .
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