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The Reason why 95% Traders fail

  • #221
  • Jan 2, 2010 10:58am Jan 2, 2010 10:58am
Quoting steveshelby
Clever use of expectancy in your argument. There may be a flaw in your premise:
Where? Prove where.
  • #222
  • Jan 2, 2010 11:01am Jan 2, 2010 11:01am
Quoting steveshelby
Either you buy at 1.5000 or 1.5002. If the bid is 1.5000 and the ask is 1.5002 and you buy, you buy at 1.5002. If tp is 50, then you sell at 1.5052 not 1.5050. The gross profit is 50. That means the expectancy is: 0.5*500-0.5*500=0.
No it's not. The expectancy is (tp-spread)/(sl+tp)*50-(sl+spread)/(sl+tp)*50=-2. (tp=50 pips and sl=50 pips and spread=2 pips)
  • #223
  • Jan 2, 2010 11:02am Jan 2, 2010 11:02am
I stopped being in the 95% category when I stopped doing what most traders do. I learned to spot extreme momentum in real time, which happens at least once or twice a day during my trading hours. Then learned to jump in, while the move is running, grab some pips and jump out with a small profit. Contrary to popular belief, you can make money scalping..but it requires a lot of screen time and practice. There are moments in the forex market..for at least 30-60 seconds, when you know for sure which way the price is moving. There is an unmistakeable surge in price..and if you know where your next resistance level is, you can jump in and grab a profit. People say that that kind of trading makes them anxious, but for me, being in a trade for hours, watching it go further against me causes way more anxiety, than being in a trade for a few seconds. I'd rather go for for 6-10 pips at 10 standard lots then try to make a 100 pips with mini lots or something. Systems seldom work because the market isn't always systematic.
  • #224
  • Jan 2, 2010 11:08am Jan 2, 2010 11:08am
Quoting serpo
Where? Prove where.
Didn't I already show the flaw in my post along with the proof?
  • #225
  • Jan 2, 2010 11:16am Jan 2, 2010 11:16am
Quoting serpo
No it's not. The expectancy is (tp-spread)/(sl+tp)*50-(sl+spread)/(sl+tp)*50=-2. (tp=50 pips and sl=50 pips and spread=2 pips)
I disagree, you are mixing apples with oranges. If you enter at 1.5002 and exit at 1.5052 you make 50 pips. If I use that in the expectancy equation, I plug in 50 not 50 - spread.

If that is the only trade then expectancy would be (50 * 1) - (0 * 0) = 50.

If the next trade is a loser then we add that in (50 * 1) - (50 * 1) = 0.

If the next trade is a loser then we add that in (50 * 1) - (50 * 2) = -50.

If the next trade is a winner then we add that in (50 * 2) - (50 * 2) = 0.

To paraphrase Tina Turner, "What's spread got to do with it?"
  • #226
  • Jan 2, 2010 11:16am Jan 2, 2010 11:16am
Quoting steveshelby
Didn't I already show the flaw in my post along with the proof?
You get a buy signal at 1.5000, set your tp and sl to be 50 pips, spread is 2 pips.
You buy at 1.5002. You are lucky and get your tp hit at 1.5052.
The probability of success is not 50% but (50-2)/(50+50)=48%.
The probability of failure is 1-0.48=52%.
So the expectancy is 0.48-0.52=-0.04
  • #227
  • Jan 2, 2010 11:18am Jan 2, 2010 11:18am
Quoting serpo
You get a buy signal at 1.5000, set your tp and sl to be 50 pips, spread is 2 pips.
You buy at 1.5002. You are lucky and get your tp hit at 1.5052.
The probability of success is not 50% but (50-2)/(50+50)=48%.
The probability of failure is 1-0.48=52%.
So the expectancy is 0.48-0.52=-0.04
You can not calculate probability in trading.
  • #228
  • Jan 2, 2010 11:19am Jan 2, 2010 11:19am
Quoting steveshelby
I disagree, you are mixing apples with oranges....
Ok, when you buy at 1.5002 the actual price is 1.5000 and not 1.5002 so you are already -2 pips down! So it means that the price has to go up 52 pips instead of 50 pips in order to hit the tp. And this is why the probability of winning is smaller than 50%.

When you buy at 1.5000, you have to pay 1.5002. Now you set your tp to 1.5052 and sl to 1.4952. (Spread is 2 pips)
But here is the trick: you can only sell at BID price and not the ASK price.
So 1.5000-1.4952 is 48 pips and 1.5052-1.5000 is 52 pips.
So the chance of winning is 48/100=48% and losing 52/100=52%.
Expectancy: 0.48-0.52=-0.04

You get the picture now, m8?

The bigger the spread, the more I'd like to be the broker.
  • #229
  • Jan 2, 2010 11:24am Jan 2, 2010 11:24am
Quoting serpo
Ok, when you buy at 1.5002 the actual price is 1.5000 and not 1.5002 so you are already -2 pips down! So it means that the price has to go up 52 pips instead of 50 pips in order to hit the tp. And this is why the probability of winning is smaller than 50%.
When I buy at 1.5002 and sell at 1.5052, I make 50 pips.
  • #230
  • Jan 2, 2010 11:25am Jan 2, 2010 11:25am
Quoting serpo
Ok, when you buy at 1.5002 the actual price is 1.5000 and not 1.5002 so you are already -2 pips down! So it means that the price has to go up 52 pips instead of 50 pips in order to hit the tp. And this is why the probability of winning is smaller than 50%.

When you buy at 1.5000, you have to pay 1.5002. Now you set your tp to 1.5052 and sl to 1.4952. (Spread is 2 pips)
But here is the trick: you can only sell at BID price and not the ASK price.
So 1.5000-1.4952 is 48 pips and 1.5052-1.5000 is 52 pips.
So the chance of winning is 48/100=48%...
You are making another assumption. Actually 2 assumptions.
  • #231
  • Jan 2, 2010 11:27am Jan 2, 2010 11:27am
Quoting steveshelby
You are making another assumption. Actually 2 assumptions.
lol, educate me master.
  • #232
  • Jan 2, 2010 11:29am Jan 2, 2010 11:29am
Quoting steveshelby
When I buy at 1.5002 and sell at 1.5052, I make 50 pips.
Correct! But the the price has to go up 52 pips in order to get your tp filled.
Bid: 1.5000 Ask 1.5002 (Buying situation)
Bid: 1.5052 Ask 1.5054 (Selling situation)
OR
Bid: 1.5000 Ask 1.5002 (Buying situation)
Bid: 1.4952 Ask 1.4954 (Selling situation)
The red color shows the prices you are dealing with.
  • #233
  • Jan 2, 2010 11:35am Jan 2, 2010 11:35am
Quoting serpo
lol, educate me master.
Your cup is full.
  • #234
  • Jan 2, 2010 3:18pm Jan 2, 2010 3:18pm
Quoting serpo
The REAL reason why 95% of traders fail is the SPREAD.
Let me give you all a small example:

Imagine you have a tp of 30 pips and a sl of 10 pips and the spread is 2 pips (yeah in your dreams!).

Now let's assume that we buy at 1.5000.
But in reality we pay 1.5002. (NOTE: the spread)
Now let's dream that our tp is hit at 1.5032.
Then we buy instantly after out tp is hit at 1.5032.
But in reality we pay now 1.5034. (NOTE: the spread)
etc....
Ed Ponsi would agree with you. Coincidentally, I've just completed reading Chapter 18 of his Forex Patterns and Probabilities book, where he discusses how spread has a relatively bigger effect on shorter timeframe trades. He likens spread to the zero on the roulette wheel, that gives the 'house' an edge.

If, for example, we're looking to catch 10 pip moves, and the spread is 2 pips, then we would require a 20% edge from our trading just to break even. If we're looking to catch 100 pip moves, then the edge required is 'only' 2%. And so on.
  • #235
  • Jan 2, 2010 3:29pm Jan 2, 2010 3:29pm
Quoting hanover
Ed Ponsi would agree with you. Coincidentally, I've just completed reading Chapter 18 of his Forex Patterns and Probabilities book, where he discusses how spread has a relatively bigger effect on shorter timeframe trades. He likens spread to the zero on the roulette wheel, that gives the 'house' an edge.

If, for example, we're looking to catch 10 pip moves, and the spread is 2 pips, then we would require a 20% edge from our trading just to break even. If we're looking to catch 100 pip moves, then the edge required is 'only' 2%. And so on....
You can not assign probabilities to trading. Casino games have a predefined start and stop. Trades do not. An exception is a margin call.
  • #236
  • Jan 2, 2010 4:16pm Jan 2, 2010 4:16pm
Quoting damagedv1
Systems seldom work because the market isn't always systematic.
I would disagree with this. Most successful traders and big investment Banks do not scalp.
  • #237
  • Jan 2, 2010 4:18pm Jan 2, 2010 4:18pm
Quoting hanover
Ed Ponsi would agree with you. Coincidentally, I've just completed reading Chapter 18 of his Forex Patterns and Probabilities book, where he discusses how spread has a relatively bigger effect on shorter timeframe trades. He likens spread to the zero on the roulette wheel, that gives the 'house' an edge.

If, for example, we're looking to catch 10 pip moves, and the spread is 2 pips, then we would require a 20% edge from our trading just to break even. If we're looking to catch 100 pip moves, then the edge required is 'only' 2%. And...
Good anwer. This is obvious, but most scalpers will disagree with you. I gave up on scalping very early in my trading.
  • #238
  • Jan 2, 2010 5:00pm Jan 2, 2010 5:00pm
Now let's assume that we buy at 1.5000.
But in reality we pay 1.5002. (NOTE: the spread)
Now let's dream that our tp is hit at 1.5032.
Then we buy instantly after out tp is hit at 1.5032.
But in reality we pay now 1.5034. (NOTE: the spread)
etc. etc.

Anyone saw the point? In those two trades we lost 4 pips!! Spread is deadly!

You don't "lose" 4 pips; because when you are buying you buy at the ask (- 2 pips). When you sell @ the bid there are no additional pips lost.
  • #239
  • Jan 2, 2010 5:40pm Jan 2, 2010 5:40pm
Quoting steveshelby
You can not calculate probability in trading.

Well no and yes..........

You can calculate the probability of a setup working to see if a setup is worth taking, ie under the correct market conditions M1 200ema has a 80%+ chance of holding and the price going in the current direction further.
Nothing to it, but to do it!!! Stick to the plan FOOL!!!!
  • #240
  • Jan 2, 2010 5:52pm Jan 2, 2010 5:52pm
@Steve: it's true that we can't assign accurate probabilities to price movement. The best we can do is back-test and use results, within appropriate statistical margin for error, as a rough guide. However, if we make an assumption that, on average, there's approximately a 50/50 probability of price rising X pips, or falling X pips, then the numbers I quoted are accurate to the extent that the assumption holds true.

@Ken: many scalpers indeed say that spread is irrelevant. But offer them the choice between a broker whose spread is 3 pips on a given pair, and one whose spread is 5 pips, and guess which one they will choose!
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