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Why is short term trading so hard

  • #1
  • First Post: Aug 4, 2010 1:34pm Aug 4, 2010 1:34pm
There are many reasons why short term trading is very difficult but a major reason that makes it so hard is because the spread is such a high percentage of your bet.

For example, let's say that you are trading a pair with a 3 pip spread and you are going for a 10 pip profit with a 10 pip stop loss.

In order for you to hit your profit, the pair has to move 13 pips.
In order for you to get stopped out the pair has to move 7 pips.

It really seems like this is the sucker bet of all bets unless you have a holy grail system that works nearly all the time and I am sure that as we all know that, due to the nature of the markets, the holy grail does not exist.

Due to these horrible odds, it seems that if you are trading- short term- with anything but the holy grail, over time you are guaranteed to lose all your money.
  • #2
  • Aug 4, 2010 1:48pm Aug 4, 2010 1:48pm
yep pretty much just a gamble but we do it. Trying to say in London or Ny time helps
  • #3
  • Edited 4:30pm Aug 4, 2010 3:16pm | Edited 4:30pm
Hello Finally

If a trader is going to use a 10pip stop loss then I tend to agree that the odds of making money is far less than when you would use say a 20pip stop loss - the size of the stop loss...for me... is a secondary matter in the determination of whether profitable short term trading is possible or not.

If you align your short term position with the long term trend you will have a high ratio of winners - it's easy to trade with the trend in a classic "slow" bull market.

Or play volatility in ranging markets, ie using daily ranges etc to base your trades on.

The problem is that with short term trades the trader expects to be right in the "short term". The feeling of having 70% of a "proven method" winners, makes most "weak disciplined" short term traders fall in the trap of trying to make it 80% or 90% winners.

If you can hang on to a short term loser and wait for the long term trend to catch up you can regain your loses...as the saying goes "every short time trade that goes wrong becomes a long term investment"...

Another more important reason is that the market movers are not concerned with the short term analysis - they move the market often against the short term trader's analysis in line with the long term trend AND/OR they change the trend/direction.

Here is a clip I watched recently of a stock day trader - notice his reference to being "in the know" with what the market movers do.

IMO - profitable short term trading is possible if you:
1. Can define the current market - ie trending, ranging, counter trend and trade accordingly
2. Have strong discipline
3. And can accept to have many losers (30%) and be able to let profits run.

Having a reliable internet connection, a few screens, a broker with good spreads and execution (and many other points) is also important but it is not the main ingredient. There are much more to it...this is just some ideas I have.

Cheers!

Inserted Video
  • #4
  • Aug 4, 2010 3:42pm Aug 4, 2010 3:42pm
1. You don't need a holy grail system with that R:R, just one that produces a high winrate.
2. You don't need to trade a pair with a 3 pip spread. Oanda's EUR/USD spread is usually .9 pips.
3. Short term trading does not mean you can only shoot for a 10 pip target.
4. You may need to trade differently when trading short term vs long term as different factors can affect short term fluctuations vs where the currency is going longer term and why.
5. etc.
  • #5
  • Aug 4, 2010 4:06pm Aug 4, 2010 4:06pm
Quoting eurotrash
1. You don't need a holy grail system with that R:R, just one that produces a high winrate.
2. You don't need to trade a pair with a 3 pip spread. Oanda's EUR/USD spread is usually .9 pips.
3. Short term trading does not mean you can only shoot for a 10 pip target.
4. You may need to trade differently when trading short term vs long term as different factors can affect short term fluctuations vs where the currency is going longer term and why.
5. etc.
Thanks for the Oanda tip.

I called them and indeed their spreads are very favorable:

eur/usd- .9 pips, gbp/jpy- 2.5 pips (great spread for this pair)
eur/jpy- 1.9 pips gbp/usd- 1.9 pips

I would switch my account to Oanda IMMEDIATELY
except they do not offer the MT4 platform and I have become accustomed to MT4.

However, I will open a demo with Oanda and see if I can adapt to Oanda's platform.

Thanks again for the Oanda tip- those LOW spreads certainly make the odds A LOT better.

Michael
  • #6
  • Aug 4, 2010 4:08pm Aug 4, 2010 4:08pm
Quoting I like steak
Hello Finally

If a trader is going to use a 10pip stop loss then I tend to agree that the odds of making money is far less than when you would use say a 20pip stop loss - the size of the stop loss...for me... is a secondary matter in the determination of whether profitable short term trading is possible or not.

If you align your short term position with the long term trend you will have a high ratio of winners - it's easy to trade with the trend in a classic "slow" bull market.

Or play volatility in ranging markets, ie using daily...
Thanks for the input.
I am looking forward to watching the video first chance I get.
  • #7
  • Aug 8, 2010 11:01pm Aug 8, 2010 11:01pm
Quoting I like steak
Hello Finally

If a trader is going to use a 10pip stop loss then I tend to agree that the odds of making money is far less than when you would use say a 20pip stop loss - the size of the stop loss...for me... is a secondary matter in the determination of whether profitable short term trading is possible or not.

If you align your short term position with the long term trend you will have a high ratio of winners - it's easy to trade with the trend in a classic "slow" bull market.

Or play volatility in ranging markets, ie using daily ranges...
There are some pearls of wisdom here. Just trading with the longer term charts is key. If my h1 and h4 are up i'm only long.. sure I miss good retraces (counter trend trades) but thats life. Other wise its just a coin filp gamble.
  • #8
  • Aug 8, 2010 11:18pm Aug 8, 2010 11:18pm
As a matter of fact, if trading rules are set advantageously, unlike the example in the last comment, a very high percentage of short term trades can be profitable. The parameters listed in the last note would never be used by an experienced trader. There are other factors that increase the probability of a successful trade.
  • #9
  • Aug 8, 2010 11:53pm Aug 8, 2010 11:53pm
short term trading you are subject to unforseen market factors and human mistakes....the guy that is supposed to sell 1000 lots on the dollar this morning missed the subway or got caught in traffic....the guy that was supposed to sell hit the buy button...the guy that wanted to sell 100 lots hit 10 or 1000...all crating adverse market moves in a short term sense.....longer stops trading longer term are much less subject to these things and follow trends much better.....
  • #10
  • Aug 9, 2010 12:36am Aug 9, 2010 12:36am
Quoting finally
Due to these horrible odds, it seems that if you are trading- short term- with anything but the holy grail, over time you are guaranteed to lose all your money.
You're absolutely right that the spread plays a huge role when trading short term in comparison to longer term. But there should be no reason whatsoever why a person would be any more likely to lose (or win) money trading short term compared to long term.

It seems to me that too many people get too hung up on time frames and charts. If you stop to think about it for more than 2 minutes, it should be apparent that time frames on charts are an illusion that we as traders place on a market. Prices in a market move one tick at a time. That's the real price action! As soon as you start placing arbitrary "time frames" on the matter, you are giving yourself a visual misrepresentation of what has happened. Take a 1 hour candle/bar.....it tells you just 4 things: where the bid price was 60 minutes ago, where is was 60 minutes later, and the very highest and lowest bid prices between those points. It then effectively discards everything else that happened within that 1 hour. Now look at different time frames, a 1 minute chart and a 4 hour chart for example. You will get two massively different views which are very likely to be interpreted entirely differently. But the actual real prices did EXACTLY the same thing at exactly the same time on both charts.

A different way to look at the time frames we place on the market is to think of it in terms of the delay in getting the information. A 1 minute chart gives us information 1 minute late (a lagging indicator). A 1 day chart gives us the information 24 hours late. Are the longer time frames so attractive when viewed like that?

I completely appreciate that different methods and beliefs work for different people, and we all need to find our own way. But I think it's a misunderstood statement to claim that short term trading is more likely to result in losses, any more so than any longer term strategy. I trade short term. I use the exact same money and risk management, and entry and exit strategy that I would use on any time frame chart. The time frame is completely irrelevant in real terms.

If I was to aim for a 10 pips profit, with a 10 pip stop loss as per your example, then yes I would be very likely to lose for all the reasons you state.....but why would a trader with half a brain set himself fixed profit targets? That foolish style of trading is what would lead me to my losses, not the short time frame that I choose to keep my trades open for. Time frames really don't matter, as in real terms there is only one time and that's tick by tick. Everything else is just an arbitrary graphical image we place on the market to try to make it more understandable or visually pleasing. Bad trading (such as fixed profits as though I know or expect the market to give me x pips) is what will make me lose.

I personally trade short term (minutes, up to a couple if hours per open trade). I lose easily 50% of all my trades (with a very tight stop loss of 10-15 pips). And yet my sole income is derived from my trading and has been for several years (all on short term trades).

I completely understand your point, and it makes good sense on paper, so I hope my reply doesn't sound intentionally confrontational, but I strongly believe the short term aspect is not any reason to lose all your money......the losing part is specifically down to bad trading.
  • #11
  • Aug 9, 2010 1:41am Aug 9, 2010 1:41am
well I will agree with one thing there...bad trading long term just takes longer to lose all your money. there is no cure for bad trading other than finding different work.........
  • #12
  • Aug 9, 2010 7:27am Aug 9, 2010 7:27am
The holy grail of trading is this: people who claim one style of trading is not profitable are themselves failures at that style of trading.

This applies to ANY trading style.
  • #13
  • Edited 12:52pm Aug 9, 2010 12:09pm | Edited 12:52pm
Trading is challenging because the normal human response is rarely the one that makes money.

This is especially true in intra-day trading. Trend-following techniques usually result in whipsaws and a slow decline of equity at best, because the market is usually not trending, and picking tops and bottoms may end the story even sooner.

Long-term trading, on the other hand, is usually based on identification of a trend and you enter on a pullback to trendline support, or something, with a reasonable stop and leave for a few days or weeks or months.

The spread has little to do with it.
  • #14
  • Aug 9, 2010 1:00pm Aug 9, 2010 1:00pm
Quoting flotsom
You're absolutely right that the spread plays a huge role when trading short term in comparison to longer term. But there should be no reason whatsoever why a person would be any more likely to lose (or win) money trading short term compared to long term.

It seems to me that too many people get too hung up on time frames and charts. If you stop to think about it for more than 2 minutes, it should be apparent that time frames on charts are an illusion that we as traders place on a market. Prices in a market move one tick at a time. That's the real...
Huge pearls of wisdom here.
so are you a mechanical trader? EA? why type that has brought you to your current level of success?
As I sit here with 10-20 pip stop trying to make a lousy 3-10 pips a few hours a day I often wounder how others WITH success are doing it.
I have pm if your not wanting to clog up thread.

thx for your in site.
  • #15
  • Aug 9, 2010 1:09pm Aug 9, 2010 1:09pm
couldn't agree more but I would argue that you are more likely to get stopped out by your broker-dealer from stop running in forex on smaller time frames (unless you are trading futures).


Quoting flotsom
You're absolutely right that the spread plays a huge role when trading short term in comparison to longer term. But there should be no reason whatsoever why a person would be any more likely to lose (or win) money trading short term compared to long term.

It seems to me that too many people get too hung up on time frames and charts. If you stop to think about it for more than 2 minutes, it should be apparent that time frames on charts are an illusion that we as traders place on a market. Prices in a market move one tick at a time. That's the real...
  • #16
  • Aug 10, 2010 11:12pm Aug 10, 2010 11:12pm
When we plot a chart, price is the vertical axis and time is the horizontal axis. So price becomes a function of time.

I believe most people fail at trading because they don't allow enough time for the trend to do its thing.

To profit you need a trend, if you're long you need an uptrend, if you're short you need a downtrend. Any trend needs time.

I always give my trade as much time as it needs, it'll have a 50 pip stop which will go to BE after 50 pips profit. Then I'll just let it ride. It can have as much of the x horizontal factor as it likes
  • #17
  • Aug 11, 2010 12:32am Aug 11, 2010 12:32am
Simple answer to a simple question

Where there is money to be made there will always be competition...

Short term trading simply allows one to (potentially) make large profits in a short ammount of time... Sounds great, but of course this greater potential to profit brings greater competition. The shorter timeframe you go the higher the competition...

at the very smallest timeframes you would be competing against computers.

Not saying that short term trading is necesarily more profitable than long term trading (or investing), but the potential is there, as well as the perception.

Higher the reward - higher the risk.
Time hides Nothing
  • #18
  • Aug 11, 2010 1:22am Aug 11, 2010 1:22am
Quoting scottyfromau
To profit you need a trend, if you're long you need an uptrend, if you're short you need a downtrend. Any trend needs time.
This is the sort of mentality that can make you lose with short term trading.
  • #19
  • Aug 11, 2010 12:05pm Aug 11, 2010 12:05pm
Quoting eurotrash
This is the sort of mentality that can make you lose with short term trading.
How are you supposed to make money without a trend? If price doesn't move from its origin there cannot be a better price for you to exit with and thus profit.
  • #20
  • Aug 11, 2010 12:27pm Aug 11, 2010 12:27pm
Quoting scottyfromau
How are you supposed to make money without a trend? If price doesn't move from its origin there cannot be a better price for you to exit with and thus profit.
Obviously it has to move, but trend trading is only one way to make money, not the only way, especially short term.
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