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Myth Busters the Forex Edition

  • #121
  • Oct 8, 2009 5:45am Oct 8, 2009 5:45am
It seems that some on this thread think that forex is some mystical art that can not be learned no matter what, well folks that is again one of those myths.

Here are somethings that work for me and some of the tools I use.
1. Price action & S/R: I focus on price action on the smaller time frames (5 min) around areas of higher time frame S/R.
2. Moving averages as floating support/resistance. There are several that work very well, like the 1hr 62 ema, the 200 sma across a variety of time frames, the 60 ema on the 5 min etc and the 5/10 emas across a number of time frames. Using the 5/10 ema on the 15 min charts you can make a killing trading bounces off of these emas when they are parallel to one another and clearly moving in one direction or the other.
3. Trade the times when the currency pairs you are trading are most likely to move, and stay away from afternoon trading in the US.
4. Stay away from the news.
5. Respect the trend on the time frame you are trading.
6. Strict money management, never risk more than 3% of your account on any given trade.
7. Have a defined set of rules to trade by and stick to them.
8. If your goal is to become a trader you have to Treat this like a business, because it is. This is probably the most important part of the whole thing.
  • #122
  • Oct 8, 2009 5:57am Oct 8, 2009 5:57am
Quoting Turveyd
The problem with a % per day is purely maths based, ie.

$10K account, 50pip per day average, trading at $10 per pip = $500 profit or 5%.
$100K account you'd have to trade at $100 per pip ( scarey ).
$1Mil Account $1000 super scarey!!

I prefer to look at average pips per day, rather than a cut and dry percentage anyways.
1000 a pip is 100 lots, good luck getting decent fills on that kind of trade.
  • #123
  • Oct 8, 2009 6:03am Oct 8, 2009 6:03am
Quoting endroute
What sort of answer are you looking for, how to do this yourself. Its called a whole hell of a lot of hard work and determination.
Good honest answer. Like I said before I have a lot of respect for traders like yourself. "A whole lot of hard work and determination" is the only way to find what works for you as an individual. There are countless examples where time invested = experience = results, fx trading counted in!

I'm also a supporter of the philosophy to "make good pips each day" or so. Each positive trade counts. For investors their portfolio and for income earners you get spend the dollars! It's a concept that requires so much discipline as it is often easy to get too excited about the potential the market has to offer and over expose yourself.
  • #124
  • Oct 8, 2009 6:10am Oct 8, 2009 6:10am
Quoting dreeamer
It's a concept that requires so much discipline as it is often easy to get too excited about the potential the market has to offer and over expose yourself.
You are so right too often people get caught up in the "dream" of tons of money from forex and loose out because they are not focused on the tactics involved to get there.
  • #125
  • Oct 8, 2009 6:11am Oct 8, 2009 6:11am
Quoting endroute
It seems that some on this thread think that forex is some mystical art that can not be learned no matter what, well folks that is again one of those myths....
Pin this one up! EDIT: Referring to bullets 4,5,6,7 & 8 specifically in this post of yours.

Regarding the percentages vs pips. Correct me if I'm wrong endroute, but the 2% is a goal and not a target each day. It sounds like you have a solid strategy and I feel like these discussions are talking about the same thing in a slightly different way, and therefore chasing it's own tail. A profit in pips or percentage...the same bones in different clothes

NB: Purely measuring performance in pips has a short coming in reflecting performance when using variable lot sizes.
  • #126
  • Oct 8, 2009 6:28am Oct 8, 2009 6:28am
Quoting endroute
1000 a pip is 100 lots, good luck getting decent fills on that kind of trade.

And there you see the issue with a % based calculation sadly you run into the max amount of lots you can actually realistically trade.

You could likely get to $200-$400 per pip without to much of a issue, so I'm good to @200K with my plan before the slow down
Nothing to it, but to do it!!! Stick to the plan FOOL!!!!
  • #127
  • Oct 8, 2009 6:37am Oct 8, 2009 6:37am
Quoting Turveyd
@200K
That's a nice number... one day account, one day you will grow up to be big
  • #128
  • Oct 8, 2009 6:42am Oct 8, 2009 6:42am
Quoting dreeamer
Pin this one up! EDIT: Referring to bullets 4,5,6,7 & 8 specifically in this post of yours.

Regarding the percentages vs pips. Correct me if I'm wrong endroute, but the 2% is a goal and not a target each day. It sounds like you have a solid strategy and I feel like these discussions are talking about the same thing in a slightly different way, and therefore chasing it's own tail. A profit in pips or percentage...the same bones in different clothes

[i]NB:...
For me I measure performance by how much I made in a week on a per $ basis. My goal is 7+ figures a year after taxes from trading, I am not there yet. I really don't have a % per day goal but rather a pips per day/week goal of 40 per day and 200 per week. There are a lot of days I don't make 40 and a lot days where I make way more than 40, I never hit exactly 40 pips a day. Its just like a business plan where you forecast your revenue you never hit the forecast number its always somewhere over or under your goal.
  • #129
  • Oct 8, 2009 6:51am Oct 8, 2009 6:51am
Quoting endroute
For me I measure performance by how much I made in a week on a per $ basis. My goal is 7+ figures a year after taxes from trading, I am not there yet. I really don't have a % per day goal but rather a pips per day/week goal of 40 per day and 200 per week. There are a lot of days I don't make 40 and a lot days where I make way more than 40, I never hit exactly 40 pips a day. Its just like a business plan where you forecast your revenue you never hit the forecast number its always somewhere over or under your goal.
What I expected, in fact with more detail. I have nothing more to say, but to recommend people read what you've just said.
  • #130
  • Oct 8, 2009 6:53am Oct 8, 2009 6:53am
I like to trade on the edge every day i trade it makes it more interesting to make the trades and then testing the market for the be options before going in for the bing one for me it is not about the pips only the profits in the shortest time period available that is what makes me a good trader from the start i never look back at my losses they will only drag me down

Happy Trading
  • #131
  • Oct 8, 2009 6:58am Oct 8, 2009 6:58am
Quoting endroute
For me I measure performance by how much I made in a week on a per $ basis. My goal is 7+ figures a year after taxes from trading, I am not there yet. I really don't have a % per day goal but rather a pips per day/week goal of 40 per day and 200 per week. There are a lot of days I don't make 40 and a lot days where I make way more than 40, I never hit exactly 40 pips a day. Its just like a business plan where you forecast your revenue you never hit the forecast number its always somewhere over or under your goal.

Thats why I use the word "AVERAGE", +50 would do me average, 250 per week I could make a living at $2 per pip doing that.

Is that really too much to ask ??

I think my trading ability is there, but my time is lacking currently too many distractions when I've got time to.
Nothing to it, but to do it!!! Stick to the plan FOOL!!!!
  • #132
  • Oct 8, 2009 6:59am Oct 8, 2009 6:59am
The number of pips is utterly unimportant. Why does everybody think in pips?

If a trader makes 1000 pips a month with an average stop loss of 200 pips he is not better than a trader with 100 pips and an average SL of 20 pips.
Also 10 pips for E/U are not the same 10 pips for G/J.

If you really want to talk pips you must always specify your average SL, which pair you trade and $ per pip. Otherwise it has no meaning, for this forum, how many pips you make daily.

Because I always consider percentage of account when I talk about trading it is very easy to spot those who don't know what they say and brag with humorous results. My account grows using percentages and I'm not collecting pips.
  • #133
  • Oct 8, 2009 12:19pm Oct 8, 2009 12:19pm
Quoting endroute
This is an interesting discussion and I guess I may have a slightly different take on this....
talking about what hedge funds shoot for. not personal trading
  • #134
  • Edited 12:45pm Oct 8, 2009 12:19pm | Edited 12:45pm
Quoting Sauron
The number of pips is utterly unimportant. Why does everybody think in pips?

If a trader makes 1000 pips a month with an average stop loss of 200 pips he is not better than a trader with 100 pips and an average SL of 20 pips.
Also 10 pips for E/U are not the same 10 pips for G/J.
Sauron, you have bought in to so many of the myths it would be hard to list them all. The fact is that pips is just as good as using all the % and $ based "accounting" systems for FX and may even be better psychologically.

If one counts pips, it's probably far less stressful than counting dollars, and far less complicated that counting the % of the trade or the account!

I have just turned the corner on being more consistent, after about a year. During my research time, I studied lots of strategies (have read almost every thread on FF and several other sites) and one thing I have found true is what is in my "tag line" at the end below my post.

You and many others have argued so successfully for your own limitations, that you now have them firmly planted in your psyche and you will, more than likely, NEVER surpass them. You are just as "bound" as any other "slave" is. Only your chains are of your OWN making.

For you to try to put those chains on other traders, just so you can feel "justified" in your chains is not only sad, it is ludicrous. One inmate telling another inmate they can never be free is just wrong!

I get so sick and tired of the tirades of traders who spend so much time telling others how it CAN'T be done I just wanna puke!

There are lots of traders who do extremely well, far, far better than the gurus of trading mediocrity.

Let's see, MysticGenie did an amazing thing when he traded, just read it and the bashing he took for it. (How I Turned 1k To 100k In A Wk!!! ) Magnum Freak does really, really well even on the M1 chart (The Ogre's Trading Journal). Jacko has a well documented trading history (Jacko's Forex House of Pleasure and Pain @ Forex Factory). Oh,, and don't forget the ppl over at EOHater's thread. (Trade what you see NOT what you expect ) If you read, there are lots and lots of others who are doing really well too.

Problem is most end up getting bashed by the likes of you and just quit wasting time trying to help because of it.

Oh, and lest I not include Non FF records of wining traders. There have been many in the "outside" world who have done amazing things as well and not just the huge ones, but done amazingly well consistently.

This link leads to a record of at least three that would shock most ppl. (The Greatest Currency Trades Ever Made) IF you bother to read the article here are some excerpts.

 

  1. Using the relatively new techniques afforded by options, Krieger took up a short position against the kiwi worth hundreds of millions. In fact, his sell orders were said to exceed the money supply of New Zealand. The kiwi dropped sharply as the selling pressure combined with the lack of currency in circulation. It yo-yoed between a 3% and 5% loss while Krieger made millions for his employers.

  1. Stanley Druckenmiller made millions by making two long bets in the same currency while working as a trader for George Soros' Quantum Fund. (and this was in BONDS of all things!)

  1. Many speculators, George Soros chief among them, wondered how long fixed exchange rates could fight market forces, and they began to take up short positions against the pound. Soros borrowed heavily to bet more on a drop in the pound........Soros made at least $1 billion off this one trade. (AND, horror of horrors, he BORROWED MONEY to do it!)

So,,, CHOOSE! Keep lying to yourself that all this is impossible and stay in your chains, or grow up! Oh, wait a minute,,, you'll say those are "special" people, that somehow they had "inside" knowledge, or special skills, or (the list is endless here) whatever, so you don't have to face the chains of your own lies and limitations, none of which have to keep you bound except you choose to let them!

To the rest of you on this thread, please forgive my outburst. Personally, the more the "crowd" cries out about the limits, the more the "Wright brothers" of the world long to fly free of it all, and eventually do!

  • #135
  • Edited 1:52pm Oct 8, 2009 1:41pm | Edited 1:52pm
Quoting eclayf
Sauron, you have bought in to so many of the myths it would be hard to list them all. The fact is that pips is just as good as using all the % and $ based "accounting" systems for FX and may even be better psychologically.
Pips don't tell you anything if you don't know all the trade sizes. dollars/euros don't tell anything if you don't know the account size. That's why percentages are the best - they tell you everything you need to know (edit: except risk) without having to go into other details.
  • #136
  • Oct 8, 2009 1:42pm Oct 8, 2009 1:42pm
I guess it's human nature that folk (and I'm not targeting anybody in particular, most of us do it when we contemplate a career in trading) speculate how much money others are making, and how much it's possible to make themselves ("If I can make 2% per week, and compound it, then…"). On forums like this, there are traders who claim to effortlessly average 5% upward per month, and conversely, others who say that 20% return per year is outstanding, because that's what the hedge funds, who employ the top analysts, strive to make. At the end of the day, the only way to find out for sure is to walk the path oneself.

[EDIT] IMHO quoting return without drawdown is somewhat meaningless. You want to know an easy way to triple your annual return? Triple the amount at risk on each trade (e.g. from 1% per trade to 3% per trade)...... but you'll triple your drawdown also.
________________

Re the percent vs pips metric debate, I see pros and cons with both approaches. One advantage with 'raw' pips is that it allows measurement of the efficacy of entries/exits independently of pos sizing. However, personally I don't like pips because (1) if trading multiple pairs, GJ (for example) will always make more pips than EU, because GJ's average daily move is so much greater, creating an imbalance in any comparison; (2) if scaling in/out of trades, and the component trades overlap, then if the same pips are counted multiple times, it will exaggerate performance (vendors use these types of claims to sell their EAs; see my post here).

Percentages can be an arbitrary measure (% of what?), as it becomes horribly confusing if one periodically deposits or withdraws money from the account. Personally, I like profit factor, regardless of whether it's $ won / $ lost (if you want to account for variable pos sizes), or pips won / pips lost (if you don't). Either way, it tells something about what is being returned relative to what is being risked. Anyway, I don't think there's a right or wrong about all this, it comes down to exactly what one is trying to measure, and also personal preference.
________________
Quoting endroute
2. Moving averages as floating support/resistance. There are several that work very well, like the 1hr 62 ema, the 200 sma across a variety of time frames, the 60 ema on the 5 min etc and the 5/10 emas across a number of time frames. Using the 5/10 ema on the 15 min charts you can make a killing trading bounces off of these emas when they are parallel to one another and clearly moving in one direction or the other.
ER, in many ways our approaches sound similar , although I don't trade TFs less than H1, and I didn't know about the MAs in your point #2. From what I've read, major S/R levels 'work' frequently because they're unambiguously visible on all lower TFs, hence a great many traders place their orders around them, which the heavyweights use as fodder when they want to move price. MAs differ both from TF to TF (e.g. a D1 EMA(10) plots a very different curve to a M15 EMA(10)), and also can be calibrated differently (e.g. an EMA(10) will create a different 'S/R' curve to an SMA(30)). I'm definitely NOT saying that you're wrong, I'm just very curious to know WHY certain MA settings would work better than others (it doesn't really matter, but I'm blighted by a inquisitive nature, LOL). I guess they're either widely known and used (self-fulfilling prophecy), or otherwise somehow reflect some aspect of collective market psychology. Anyway, many thanks for sharing, I'll check these out.
  • #137
  • Oct 8, 2009 1:48pm Oct 8, 2009 1:48pm
Quoting hanover
Percentages can be an arbitrary measure (% of what?), as it becomes horribly confusing if one periodically deposits or withdraws money from the account. Personally, I like profit factor, regardless of whether it's $ won / $ lost (if you want to account for variable pos sizes), or pips won / pips lost (if you don't). Either way, it tells something about what is being returned relative to what is being risked.
I like profit factor too but it has the same problems as you listed with percentages, if you deposit/widthraw money it weights the periods of curve differently (unless you normalize it what I do).

Also with pf you are missing one important piece of information, frequency of trades. I would much rather use a lower pf system that trades much more frequently than higher one that trades more infrequently. With same frequency/pf rate they both give you same amount of money but other gives smoother curve (lower pf/more trades one)

MAR is a good approach as well if we go into metrics.

Sharpe and sortino are two others but they have their own problems (meaning they don't calculate accumulation of wins/losses which mar basically does).
  • #138
  • Oct 8, 2009 2:02pm Oct 8, 2009 2:02pm
Quoting mikkom
I like profit factor too but it has the same problems as you listed with percentages, if you deposit/widthraw money it weights the periods of curve differently (unless you normalize it what I do).

Also with pf you are missing one important piece of information, frequency of trades. I would much rather use a lower pf system that trades much more frequently than higher one that trades more infrequently. With same frequency/pf rate they both give you same amount of money but other gives smoother curve (lower pf/more trades one)
Agree totally , I think that most metrics have their limitations.
  • #139
  • Oct 8, 2009 2:55pm Oct 8, 2009 2:55pm
eclayf, you named some black swans, that's all.
Remember, if 1000 people enter in a casino with 1000 each and they play 2 times at roullette with the whole amount one of them will be a millionaire. The next day the newspaper will quote the winner and forget the 999 losers.

I didn't say it can be done, I emphasized that those kind of profits are not realistic. Realistic is to develop a strategy which gives you 50-100% yearly using sound money management combined with a solid edge. This will put a trader ahead of 99.99% of all other traders. This is what I also try to do.
  • #140
  • Oct 8, 2009 2:57pm Oct 8, 2009 2:57pm
Quoting hanover
ER, in many ways our approaches sound similar , although I don't trade TFs less than H1, and I didn't know about the MAs in your point #2. From what I've read, major S/R levels 'work' frequently because they're unambiguously visible on all lower TFs, hence a great many traders place their orders around them, which the heavyweights use as fodder when they want to move price. MAs differ both from TF to TF (e.g. a D1 EMA(10) plots a very different curve to a M15 EMA(10)), and also can be calibrated differently (e.g. an EMA(10) will create a different...
You are absolutely correct there are big differences when using the same ma on different timeframes. For example when trading the 5 min charts I look at equivalents to higher timeframe emas, so on the 5 min chart the 2400 sma = the 1 hour 200 sma, these areas are typically good anywhere from a 20 to a few hundred pips and the risk is pretty minimal (10 pips on the other side of the ma) I know that these work because of lots of experience, just look on the eur/jpy this week along and you will see repeated tests of these levels and subsequent failures. These are by no means the only tools I use to determine good entries, but they are pretty effective stand alone strategies.
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