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fx trading for the longterm and tax issues 5 replies

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shortterm vs longterm trading

  • Post #1
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  • First Post: Nov 24, 2005 8:16am Nov 24, 2005 8:16am
hi guys,

I've realized that daytrading can be emotionally and financially stressful.

But forex market are volatile compared to futures and stockmarket.Can one really trade long term in forex and come out a winner?

I'm more in favour of LTT but wonder will it work well in fx market?
Quoting Blackship
hi guys,

I've realized that daytrading can be emotionally and financially stressful.

But forex market are volatile compared to futures and stockmarket.Can one really trade long term in forex and come out a winner?

I'm more in favour of LTT but wonder will it work well in fx market?
If by long term you mean as an investment held for months or even years, then I cannot answer that. But there is a simple, profitable alternative to sitting and staring at your screen all day with your trigger finger poised nervously over the mouse button. Try your hand at trading medium term charts such as 4hour or daily. For a good 4hour system whose trades can last for several days, check out the "Lost in the Tunnel" thread.

Dial
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thanks for the feedback, and looking forward for profitable trading next year

May the force be with us!
i guess for less day-to-day stress you can also try the 'cash n carry' ?

Ken
Trade what you see, not what you believe.....
Quoting Blackship
hi guys,

I've realized that daytrading can be emotionally and financially stressful.

But forex market are volatile compared to futures and stockmarket.Can one really trade long term in forex and come out a winner?

I'm more in favour of LTT but wonder will it work well in fx market?
Take a look at the monthly USD/JPY. There's some long term profit potential there. We've seen it go from 102.00 to 119.00 in the past few months. Too bad I kept trying to day trade it than buy it at 102.00 and hold it 'til 119.00.
Because helping each other is a good thing.
From experience I would say the longer the trading horizon the greater the risk of success. I know this is blanket statement but I am only referring to the statistical advantage imbued on the long-term trader that comes from having a lower commission (as a % of the trade).


Spreads have tightened a great deal in recent years but if you are trading on a window of a few minutes, then the spread can easily comprise 50% of your trade cost. On a weekly or monthly trade, the spread is so small its almost commission free.
"Always bet on black"
Quoting Blackship
hi guys,

I've realized that daytrading can be emotionally and financially stressful.
You forgot to mention mathematical suicide when you scalp or even daytrade...

Quote
But forex market are volatile compared to futures and stockmarket.Can one really trade long term in forex and come out a winner?
I'm more in favour of LTT but wonder will it work well in fx market?

Where did you hear that? Forex is the least volitile of the known markets... Forex rates barely change above 1-2% daily... Penny stocks can change as much as 30% per day...
volatility is in the eye of the beholder
"Always bet on black"
Quoting Fanat
Where did you hear that? Forex is the least volitile of the known markets... Forex rates barely change above 1-2% daily... Penny stocks can change as much as 30% per day...

Volatility mentioned is the volatility of the of the return of the leveraged investment. If you can buy penny stocks using 200:1 margin, then I think this will make it the most volatile instrument in the world. It's not the base price which you base your volatility on, it's the base amount inclusive leverage, so that's a huge result. You can call it portfolio volatility rather than pair volatility.


Thanks,

Nader
Quoting Blackship
hi guys,

I've realized that daytrading can be emotionally and financially stressful.

But forex market are volatile compared to futures and stockmarket.Can one really trade long term in forex and come out a winner?

I'm more in favour of LTT but wonder will it work well in fx market?
My opinion, as the number of your trades increase, as the percentage you are going to be right increases. If you are trading currencies long term, say a trade in a year, now such a type of trading can be more emotionally and financially stressful. 1 wrong trade in the year = 365 lost days (Actually around 264 trading days), money lost in a huge sum (Don't tell me that you are going to accept only a 5% risk per trade for a trade which is supposed to remain opened for 12 months, sure you must have your stop loss point very far away to avoid the whipsaws), and finally, no need to be a full time trader, which will attract you away from the market, and you will eventually lose contact with daily action, and now you will have less information than daytraders, and this will weaken your decisions a lot and lower your correct percentages.

I am not against long term trading, but it should be made with large amounts of capital. In my opinion, to be able to play it long term, you are talking about a $250,000 account at least. Since long term plays will include hedging and multiple currency plays, so sufficient capital is needed..


Thanks,

Nader
Quoting narafa
Volatility mentioned is the volatility of the of the return of the leveraged investment.
I haven't heard that as the definition of volatility. What I head was:

Volatility
1. A statistical measure of the tendency of a market or security to rise or fall sharply within a period of time.


http://www.answers.com/volatility&r=67
Quoting Fanat
I haven't heard that as the definition of volatility. What I head was:

Volatility
1. A statistical measure of the tendency of a market or security to rise or fall sharply within a period of time.


http://www.answers.com/volatility&r=67
You can replace the "Market or security" term by the amount of Dollars the account holds


Thanks,

Nader
Quoting narafa

I am not against long term trading, but it should be made with large amounts of capital. In my opinion, to be able to play it long term, you are talking about a $250,000 account at least. Since long term plays will include hedging and multiple currency plays, so sufficient capital is needed..


Thanks,

Nader
I don't agree with this. I trade a daily system and have been long the USD/JPY since 17/10 from 113.92 and have around 500 pips of open profit. My risk per trade is 2.5% with this particular system. You could trade it with $1,000 or $1,000,000 as long as you can trade whatever position size you want (like with Oanda). I haven't hedged this position at all nor do I do multiple currency plays. I trade a system over the 4 majors plus AUD and CAD. While this trade has been open I have had positions on the AUD, GBP, CHF and EUR, some of which have been open for a couple of weeks or more and some of which are now closed.

I do have wide stops but that has nothing to do with my risk.

Simon
Quoting DrRock
I do have wide stops but that has nothing to do with my risk.
Simon
So what's the risk factor you are using if it's not the stop loss you are willing to take??


Thanks,

Nader
Quoting narafa
My opinion, as the number of your trades increase, as the percentage you are going to be right increases. If you are trading currencies long term, say a trade in a year, now such a type of trading can be more emotionally and financially stressful. 1 wrong trade in the year = 365 lost days (Actually around 264 trading days), money lost in a huge sum (Don't tell me that you are going to accept only a 5% risk per trade for a trade which is supposed to remain opened for 12 months, sure you must have your stop loss point very far away to avoid the whipsaws), and finally, no need to be a full time trader, which will attract you away from the market, and you will eventually lose contact with daily action, and now you will have less information than daytraders, and this will weaken your decisions a lot and lower your correct percentages.

I am not against long term trading, but it should be made with large amounts of capital. In my opinion, to be able to play it long term, you are talking about a $250,000 account at least. Since long term plays will include hedging and multiple currency plays, so sufficient capital is needed..


Thanks,

Nader
I disagree with this entirely. I trade a long term system but it is definitly not a function of your account size as much as it is your position size. If you go with brokers like GFT that allow you to control your lot sizes, then you can effectively keep your risk within normal parameters (2%, for example) without needing high amounts of capital
Quoting dvescio
I disagree with this entirely. I trade a long term system but it is definitly not a function of your account size as much as it is your position size. If you go with brokers like GFT that allow you to control your lot sizes, then you can effectively keep your risk within normal parameters (2%, for example) without needing high amounts of capital
I agree that you can control your lot size, but I don't agree that you will be able to keep the risk at 2%. If you are long the dollar in 3 or 4 different pairs, you actually have 1 position. That's 1 trade, long the dollar. If for every trade, you have a 2% capital risk, then that's an 8% capital risk, simply put on a dollar long position. I consider this a high risk position.

Another point, do you consider long term as I defined it?? 1 trade per year?? Many people will consider 1 trade per month on the daily chart as long term trading. It's all relative, but a long term trading is on larger time frame charts, weekly and monthly. Daily is considered by me as medium term.

Why I said that to trade long term in my opinion, one need large capital. To be able to bear with the drawdowns. If you are going to open a $10,000 account, and use a 1 mini lot per trade, your return can be in the range of 15-20% per year. That's $1,500-$2,000, 1,500-2,000 pips!!! Yes you can trade long term using low capital, but is it really worth it???

Remember, I didn't say it's essential to trade using large capital, I said in my opinion, it needs high capital to be successful and worth the dilemma and risk.


Thanks,

Nader
Quoting narafa
So what's the risk factor you are using if it's not the stop loss you are willing to take??


Thanks,

Nader
Perhaps I didn't explain myself very well. From memory the stop-loss size for the JPY trade was around 250 pips. I only risked 2.5% in the trade which resulted in an appropriate position size. If my stop size was only 125 pips then my position size would have been twice as large. So my stop loss doesn't have anything to do with the amount of risk I take on - I choose the amount of risk I take on and that is 2.5% regardless of where my stop loss is.

Simon
Quoting narafa
Why I said that to trade long term in my opinion, one need large capital. To be able to bear with the drawdowns. If you are going to open a $10,000 account, and use a 1 mini lot per trade, your return can be in the range of 15-20% per year. That's $1,500-$2,000, 1,500-2,000 pips!!! Yes you can trade long term using low capital, but is it really worth it???

Nader
If you make 2000 pips per year and your stop size is on average say 100 pips and you risk 2% per trade then that means your return would be 40% for the year. If you only had to spend 30 minutes per day achieving this result then it looks pretty good to me.

Simon
Quoting narafa
I agree that you can control your lot size, but I don't agree that you will be able to keep the risk at 2%. If you are long the dollar in 3 or 4 different pairs, you actually have 1 position. That's 1 trade, long the dollar. If for every trade, you have a 2% capital risk, then that's an 8% capital risk, simply put on a dollar long position. I consider this a high risk position.

Another point, do you consider long term as I defined it?? 1 trade per year?? Many people will consider 1 trade per month on the daily chart as long term trading. It's all relative, but a long term trading is on larger time frame charts, weekly and monthly. Daily is considered by me as medium term.

Why I said that to trade long term in my opinion, one need large capital. To be able to bear with the drawdowns. If you are going to open a $10,000 account, and use a 1 mini lot per trade, your return can be in the range of 15-20% per year. That's $1,500-$2,000, 1,500-2,000 pips!!! Yes you can trade long term using low capital, but is it really worth it???


Remember, I didn't say it's essential to trade using large capital, I said in my opinion, it needs high capital to be successful and worth the dilemma and risk.


Thanks,

Nader
Ah, i see what you're saying Narafa and i do agree that "long-term" is all relative. In fact, i trade primarily the GBP and it generates about 25 trades/year. Maintaining 2% risk is no problem at all in that case but i do agree with what you say about the risk associated with trading multiple pairs in long-term systems.
Quoting DrRock
Perhaps I didn't explain myself very well. From memory the stop-loss size for the JPY trade was around 250 pips. I only risked 2.5% in the trade which resulted in an appropriate position size. If my stop size was only 125 pips then my position size would have been twice as large. So my stop loss doesn't have anything to do with the amount of risk I take on - I choose the amount of risk I take on and that is 2.5% regardless of where my stop loss is.

Simon
Ok, this is great. So let's do some little math. You were risking 2.5% on the trade, which was 250 pips. Excellent. If we assume that you are using 1 mini lot, this means that the 2.5% = $250, and means that your account is $10,000. Nice. This means that you are using a 1:1 leverage. So why bother then?? You are not using any leverage. The 500 pips profit you are realizing right now represent 5% of your account. So the trade made 5% in almost 1 month. This is fine and a good rate actually.

Things to bear in mind:

1- You are basing everything on just 1 trade (The game consits of tens of them)

2- You are playing it safe, low risk, low return, fine, but stocks might be better for a low risk low return strategy, specially that you are buying assets actually when you invest your money in stocks


I am not against long term trading as I said. What I want to say is that such a strategy is an extremely low risk low return one, if you want to apply it, that's fine, but it's better to use the money in stocks instead.

Of course, that's my opinion


Thanks,

Nader
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