First, thank you very much for taking the time to read what I have written
I have been trading the forex market profitably for a few years (managing a private fund) and I have taken the personal challenge of training a few new traders myself. After having all this experience I have seen that all failing traders have one very important thing in common which can be easily fixed. They don't know what they are trading.
I was only able to become profitable in trading when I knew exactly what I was trading and what I could expect from the systems I was following. Trading doesn't work if you don't know what the long term targets and results of what you are doing are. Think about this, can you answer the following questions about your trading :
- How much do you expect to make in average every year after 5 years ?
- What is your expected maximum draw down ?
- What is the expected average draw down period length ?
- what is the maximum number of consecutive losses you will experience ?
- Does the system have a positive mathematical expectancy ?
The fact is that traders who are already profitable will be able to answer this while traders who don't will have a very hard time doing so. The easiest way to become profitable is to trade in a way in which all the above variables are known. If you trade a mechanical or discretionary strategy for which the above characteristics for past performance are known then it will be MUCH easier to tackle the future.
If you trade your manual or discretionary strategy in a forward "live running" simulation amounting to ten years of results and you can then have an idea about what the system does, then obviously you will have a better chance at surviving profit and draw down cycles and getting to the other side. Every strategy has draw downs, every system has losing periods but the understanding of these is what makes a dramatic difference for a forex trader (speaking a lot for myself and my students here).
Time after time I have found that people go on and on in forums trading and modifying strategies that simply don't have an edge and will never work. How in the world can you trade something you don't understand ? How can you trade a system for which the expected profit and draw down values in the long term (years) are unknown ? I certainly couldn't do this and I believe that most people will also have a very hard time doing so. Traders usually cling to forum developed systems without proper evaluation for ages - usually when they are within profitable periods - but when the market exposure of these systems is cashed they quickly get forgotten and people lose interest. I always think that if they had only done a rigorous evaluation they would have found the strategy to be worthless from its very beginning.
The objective of this thread is to teach new traders the approach to trading by evidence and analysis. Design and do extensive historical tests of the discretionary or mechanical strategies you are using and then you will have a much better chance of reaching profitability. What do you think ? Would you join me fellow traders ?
Please feel free to leave any questions you may have
PS : My schedule doesn't allow me to get into forums very frequently but I will do my best to come in here and answer questions from time to time