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Myth Busters the Forex Edition

  • #221
  • Oct 18, 2009 12:00pm Oct 18, 2009 12:00pm
Quoting triphop
Myths abound, the real question (another thread?) are what are the absolute truths in fx?
...
- You can't escape risk whichever way you play it, so you have two choices - accept that and control it, or let it control you
...
Even this is a myth and is countered by the existence of riskless arbitrage.

(Of cause it depends on ones definition of "risk" as there are several different types of risks involved in trading.)

Such a thread would suffer from the same problems as this thread: an absolute truth to one trader might be absolute false to another trader.
  • #222
  • Edited 12:53pm Oct 18, 2009 12:38pm | Edited 12:53pm
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.
For Heaven's Sake! This is the mother lode of all myths. It's a scientifically fact that no system can continue exponential growth indefinitely.

This "billionaire" argument against the possibility of excessive returns pops up with alarming regularity and there is a whole list of reasons why its completely false.

Just for the example, I have traded systems where a few lots were the maximum trade size due to liquidity constraints. While successful, there is no way this system could make billions.

Also, it's a "myth" that traders generally base their risk management on risking a certain % of their account pr. trade. Once you get a decent sized account at least some traders start to care a lot more about consistency than making a certain % pr day/month/year/whatever.

EDIT: Sauron, based on your other posts I guess this post was meant to be provocative and not an argument in it self.
  • #223
  • Oct 18, 2009 1:45pm Oct 18, 2009 1:45pm
The post was of course provocative because all the traders who say about them or others that they are winning hundreds of pips or percents daily are lying. The best argument being that winning so much on a daily basis would make them rich enough in a short time and they are simply aren't.

Anyway, I didn't expect to find this kind of opposition after I brought in discussion words like edge, compound interest and consistency.

It is clear that after a while you are more concerned being consistent (exactly what I'm saying about 1-5% a month as a healthy goal).

Quote
Also, it's a "myth" that traders generally base their risk management on risking a certain % of their account pr. trade.
Why is that a myth? I don't like risking more than 2% of my account on every trade so I adjust my risk per pip accordingly. Is there any other way of thinking? I don't know if or how much I'll win but I must know how much I can possible lose.

Quote
It's a scientifically fact that no system can continue exponential growth indefinitely.
You can't prove this negative. If you develop a system which gives you at least 5% a month your account will grow "indefinitely", meaning that it is limited only by what the market could possible give. Or did I misunderstand you? Of course it can't grow to hundreds of billions but there's no reason why you can't go from 100K to 100 millions using compound interest on a long period of time.
  • #224
  • Oct 18, 2009 1:56pm Oct 18, 2009 1:56pm
Quoting hanover
one of which is generated solely by MACD. And yes, he's also a very successful trader.

MACD is just the difference between 2 SMA's, I can express my system with a MACD or 4, not that I would wastes screen estate.

People if there good can takes total myths with no relevance to anything and still make money, they'd make more if they didn't base it on myths most likely, but there seeing patterns and using the myths to distract them, nothing more.
Nothing to it, but to do it!!! Stick to the plan FOOL!!!!
  • #225
  • Edited 2:40pm Oct 18, 2009 2:29pm | Edited 2:40pm
Quoting Sauron
Anyway, I didn't expect to find this kind of opposition after I brought in discussion words like edge, compound interest and consistency.
I skimmed through the thread and unfortunately my eyes fell on this post before I read your other posts. I tried (too) loosely to indicate that in my edit. I should obviously had choosen another "victim" for my little rant.

Quoting Sauron
Why is that a myth? I don't like risking more than 2% of my account on every trade so I adjust my risk per pip accordingly. Is there any other way of thinking? I don't know if or how much I'll win but I must know how much I can possible lose.
Its a myth because you can not necessarily completely separate risk management and strategy (oh my - one more myth down the hole).

For some types of strategies its more about taking what you can get in practice than calculating theoretically optimal position sizes.

Quoting Sauron
You can't prove this negative. If you develop a system which gives you at least 5% a month your account will grow "indefinitely", meaning that it is limited only by what the market could possible give. Or did I misunderstand you? Of course it can't grow to hundreds of billions but there's no reason why you can't go from 100K to 100 millions using compound interest on a long period of time.
It depends solely on how scalable your strategy is and how you define "a long period of time". At some point all strategies starts to hit liquidity limits and you will start to effect the market. When a strategy hits its liquidity limit it doesn't really make sense to think in % but instead you will have to think in absolute numbers (like this strategy might be able to turn in 4 million $ pr year in profit and not 20% of some account size ).

Of cause, given enough time those 100K could be turned into 100 million on a regular bank savings account...

EDIT: I forgot to mention that it also depends very much on how fast the "alpha decay" of the strategy is. Edges don't last forever.
  • #226
  • Oct 19, 2009 3:07am Oct 19, 2009 3:07am
I think we should remain on Earth and I mean in forex you'll not reach so fast the moment when you are able move the market. Also not many on this forum have more than 100K to start with so calculating your risk per trade depending solely on your account size is normal.

By enough time I mean 10 years at least for the edge and compound interest to work together for very high returns.

I tend to disagree but I can't prove it. The edge can decay or can increase. If the system is simple enough and has one filter the chance of "decaying" is also very small. If the trader gives up to the tentation of curve fitting by adjusting parameters then a system can work a long period of time. Also some discretionary filter from time to time can have a positive impact.
  • #227
  • Edited 4:38am Oct 19, 2009 4:31am | Edited 4:38am
Just saw BlackMage's reply to Sauron. I can hardly believe my eyes. Quote, "there's no reason why you can't go from 100K to 100 millions," of course he then goes on to put limits on it.

If that's true, then there is no reason one can't go from $100.00 or $1000.00 to hundreds of thousands. There are things that must be dealt with in trading, just like BlackMage says, kudos BlackMage! BUT the only "limit" is still the trader and what HE or SHE believes they are capable of.

If one strategy reaches a point of being ineffective enough, the trader must adapt and learn to overcome the issues involved. Still, if even one trader can make a billion in a single day, there is no reason others can't do the same.

It may take more skill than most currently have or even may learn in the very near future, still, it proves the possibility of that achievement.

Now, lest I go sounding like an Amway sales man again. Let me quote some well known achievers in other areas of life. Perhaps they are more believable than I am.

“Imagination is more important than knowledge. Knowledge is limited. Imagination encircles the world.” -Albert Einstein

“The true sign of intelligence is not knowledge but imagination.” -Albert Einstein

“Imagination is everything. It is the preview of life's coming attractions.” -Albert Einstein

“Logic will get you from A to B. Imagination will take you everywhere.” -Albert Einstein

And those are from a man who supposedly only used 10% of his brain!

“America was not built on fear. America was built on courage, on imagination, and unbeatable determination to do the job at hand.” -Harry S. Truman

“Imagination governs the world.” -Napoleon Bonaparte

“There is hope in dreams, imagination, and in the courage of those who wish to make those dreams a reality.” -Jonas Salk- Creator of the Polio Vaccine

“Men often become what they believe themselves to be. If I believe I cannot do something, it makes me incapable of doing it. But when I believe I can, then I acquire the ability to do it even if I didn't have it in the beginning.” -Mahatma Gandhi


"In one of the most well-known studies on Creative Visualization in sports, Russian scientists compared four groups of Olympic athletes in terms of their training schedules:

Group 1 = 100% physical training;
Group 2 - 75% physical training with 25% mental training;
Group 3 - 50% physical training with 50% mental training;
Group 4 - 25% physical training with 75% mental training.
Group 4, with 75% of their time devoted to mental training, performed the best. " -Wikipedia for reference at this link http://en.wikipedia.org/wiki/Creative_visualization

Imagination is the forge of the mind which allows it to create the reality we will live in during our life. It creates OUR life, not someone else's. ** If creative visualization is that poweful in athletics, which is a physical pursuit, imagine how effective it would be in the effort to improve one's trading, wich is a mental pursuit!

IF we can imagine and believe a thing, there is literally nothing that can stop us from getting there, but us.

The time involved in "getting there" is, to quote Einstein yet again, "relative" to our desire and belief that we will get there. It does NOT have to take "years and years."

There will be obstacles to be overcome, there always are. It will require work, but what doesn't? We will from time to time probably need to learn and acquire new skills and perhaps a new understanding of the scale of finances we begin to "deal" with, but so what? That will be a nice problem to face!
  • #228
  • Oct 19, 2009 5:01am Oct 19, 2009 5:01am
Quoting Sauron
I think we should remain on Earth and I mean in forex you'll not reach so fast the moment when you are able move the market. Also not many on this forum have more than 100K to start with so calculating your risk per trade depending solely on your account size is normal.
It's not necessarily about moving the markets but also about getting a part of the liquidity that exist on a certain level (which will always be limited). If you trade with a market maker broker they will create a somehow artificial market with artificial liquidity, but if you trade in a "real" market like CME, then liquidity can be really low at some points in time (like just before/after a news release).

As the frequency of trades increases the impact of liquidity constraints increase as well.

Quoting Sauron
I tend to disagree but I can't prove it. The edge can decay or can increase. If the system is simple enough and has one filter the chance of "decaying" is also very small. If the trader gives up to the tentation of curve fitting by adjusting parameters then a system can work a long period of time. Also some discretionary filter from time to time can have a positive impact.
The concept of an "edge" is not well defined and everybody tends to have sligthly different views on it. Anyway, if the system is designed for example to exploit a certain arbitrage opportunity, it will almost certainly only work for a period of time, since this opportunity will disappear when enough people starts to exploit it or when the market mechanics changes.

A well known example of this was the "news latency arbitrage" that was popular a few years ago and which forced brokers like Oanda to change their policies.
  • #229
  • Oct 19, 2009 5:39am Oct 19, 2009 5:39am
Quoting BlackMage
It's not necessarily about moving the markets but also about getting a part of the liquidity that exist on a certain level (which will always be limited). If you trade with a market maker broker they will create a somehow artificial market with artificial liquidity, but if you trade in a "real" market like CME, then liquidity can be really low at some points in time (like just before/after a news release).

As the frequency of trades increases the impact of liquidity constraints increase as well.



The concept of an "edge" is not well defined...

Alot of people believe in a lot of edges, when really they have no edge at all, they can see it after the event in most cases but it's of no use before the event for live trading, or they get the occasional big win from it despite much bigger losses and think they can improve upon this to win all the time.

Either the people see and accept this which is not likely as most people are well average and get stuck very easily into repeating there mistakes forever, or there doomed to repeat and keep losing.

I had a FXCM Guaranteed price exploit a few years back, when the market at news times would just move 100pips in sub 1 second, I could get in at the bottom for maybe 3 - 4 seconds and get out at the top thanks to FXCM's delay compared to my chart Made BOAT loads of this before FXCM put me on manual execution and just rejected all of my trades
Nothing to it, but to do it!!! Stick to the plan FOOL!!!!
  • #230
  • Oct 19, 2009 5:43am Oct 19, 2009 5:43am
I think that there are edges other than those offered by arbitrage. And I think I found one. Time will tell.

For example, the markets move differently during the 3 sessions of the day. I consider this to be a fundamental fact. And where's change there are ways to exploit it. It is just not easy measurable as an arbitrage opportunity.
  • #231
  • Oct 19, 2009 5:53am Oct 19, 2009 5:53am
Quoting Sauron
I think that there are edges other than those offered by arbitrage. And I think I found one. Time will tell.

For example, the markets move differently during the 3 sessions of the day. I consider this to be a fundamental fact. And where's change there are ways to exploit it. It is just not easy measurable as an arbitrage opportunity.

Watching for and trading and 200ema M1 cross on all 3 was working well 2 weeks back just after the market open time, ie 9:30am GMT and 2:30pm GMT and the asia open to.
Nothing to it, but to do it!!! Stick to the plan FOOL!!!!
  • #232
  • Oct 19, 2009 6:45am Oct 19, 2009 6:45am
Now, lest I go sounding like an Amway sales man again. Let me quote some well known achievers in other areas of life. Perhaps they are more believable than I am.


I had a mate into Amway YEARS back like 13years back and he dragged me along to a 2 day on the weekend convention, I can safely say I've never been to anything as bad in my life, i didn't even bother to go on day #2, full of the stupidest people I've ever met in my life falling for the BS.

On the plus side, the Amway rep guy had a VERY Fit Mr's and she made it worth it


Nothing to it, but to do it!!! Stick to the plan FOOL!!!!
  • #233
  • Oct 19, 2009 12:18pm Oct 19, 2009 12:18pm
Quoting Turveyd

On the plus side, the Amway rep guy had a VERY Fit Mr's and she made it worth it
  • #234
  • Oct 19, 2009 3:22pm Oct 19, 2009 3:22pm
eclayf thank you once again, That is a great post and just reading it is refreshing there are so many posts and web sites putting people down who have small accounts but I know that anyone can trade the forex and be successful its all about learning and most important BELIEVING! Its not about having a massive account size.

Here is a quote which has helped me.Many people stop trading because they have blown to many accounts or they think they will never find a system which works. When they could have been so close to being successful they just gave up to early.

"Many of life’s failures are people who did not realize how close they were to success when they gave up." Thomas Edison
  • #235
  • Oct 19, 2009 4:01pm Oct 19, 2009 4:01pm
Quoting Juneman
eclayf...

Most people fail cause, well read my signature.

Mainly they over think it, they try to make predictions which is just ridiculous, or they work by a if the price gets over X we are bullish, it's moved 200pips to get there so ofcourse it's going to stall and reverse on you.

Keep it Simple, go with the trend / direction and try to enter on a pull back and you've got it made, it really is that simple, accepting it's that simple isn't easy, do it and stop over thinking it.



Never quit and never surrender!!
Nothing to it, but to do it!!! Stick to the plan FOOL!!!!
  • #236
  • Oct 19, 2009 4:14pm Oct 19, 2009 4:14pm
95% of traders lose, because they go onto Forums and get taught how to lose

 Turveyd that is very true, That’s what I did until I realised just follow the trend and read the candles. You don't need 10 indicators the market will do what it wants to do but there is one thing that is guaranteed the market WILL go up and down.
  • #237
  • Oct 19, 2009 4:23pm Oct 19, 2009 4:23pm
Quoting Juneman
95% of traders lose, because they go onto Forums and get taught how to lose

 Turveyd that is very true, That’s what I did until I realised just follow the trend and read the candles. You don't need 10 indicators the market will do what it wants to do but there is one thing that is guaranteed the market WILL go up and down.


Yep, I just have my SMA's cause they give me something to trade off, no indicators EVER work, not a 1 and I've tested all of them.

And basic physics a object in motion generally stays in motion works for Forex to, ie a direction generally holds for a while until the order flow changes, trust this and use this.


If you listen to the profitable people they all say they forgot it all and put a few sma's onto there charts and bingo!!
Nothing to it, but to do it!!! Stick to the plan FOOL!!!!
  • #238
  • Oct 23, 2009 7:56am Oct 23, 2009 7:56am
Quoting Turveyd
Yep, I just have my SMA's cause they give me something to trade off, no indicators EVER work, not a 1 and I've tested all of them.

And basic physics a object in motion generally stays in motion works for Forex to, ie a direction generally holds for a while until the order flow changes, trust this and use this.


If you listen to the profitable people they all say they forgot it all and put a few sma's onto there charts and bingo!!
Well said, my man.
  • #239
  • Nov 27, 2009 8:12pm Nov 27, 2009 8:12pm
Quoting Juneman
95% of traders lose, because they go onto Forums and get taught how to lose

Turveyd that is very true, That’s what I did until I realised just follow the trend and read the candles. You don't need 10 indicators the market will do what it wants to do but there is one thing that is guaranteed the market WILL go up and down.
  • #240
  • Nov 29, 2009 8:30am Nov 29, 2009 8:30am
Quoting Turveyd
And basic physics a object in motion generally stays in motion works for Forex to, ie a direction generally holds for a while until the order flow changes, trust this and use this.
Are you referring to the conservation of momentum? http://en.wikipedia.org/wiki/Momentum

There is an indicator to measure this price "momentum"
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