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What are your favorite trading myths?

  • #61
  • Nov 10, 2014 1:47pm Nov 10, 2014 1:47pm
Quoting alifari
{quote} IMO here is how a typical retail trader thinks about preservation of capital. They focus too much on finding the A+++ 2-3 trades per week/month and when they finally get into a trade and as soon as market starts turning in their favor they often move to break even cause they think it's a free trade now and that their ultimate job is to preserve capital and most often their trade ends in breakeven and they feel good about it cause they didn't lose any money on that trade. Well if they were so afraid of losing money, why did they placed a...
Fair enough. Agree that the trader must be willing to accept some risk, to make a worthwhile return; but also while sizing positions conservatively enough so that any 'unexpected' sequence of losses doesn't cause unacceptable drawdown. IMO it's ultimately about achieving a balance between return and risk that one feels personally comfortable with.
  • #62
  • Nov 10, 2014 3:12pm Nov 10, 2014 3:12pm
Quoting smash1820
{quote} I'm sorry, but I will not "educate you", as you would like (unless you want to pay me for that privilege?). There is far too much to learn. However, what I can do, and will (because I am nice), is point you in the right direction. Some of the people that helped me the most on this forum (and without a single direct contribution... this guy has been "retired" for a long time and no longer posts here) is Mr. Spudfrye. I do not say or list or talk about or give away this information much because...
Thanks Smash, maybe i was just being a bit facetious when i asked you to educate me, but in any case thank you. I will read the above threads (already spent time on Nihilist's thread)
I do understand stochastics, theory of probability in random (non deterministic) events. I would encourage you to also read and understand the difference between structured and non-structured randomness (stochastics can be applied well in structured randomness (finite variables) but becomes difficult to apply in non-structured randomness with infinite variables.

IMHO forex markets are non-structured randomness, there are endless variables contributing to price movement. In essence using stochastic in forex is like solving an non-linear equation, like forecasting weather, the further out in time the less reliable it becomes.

All to say, there are no indicators that can analyze past performance to predict future events. Think about it logically, how can an indicator or any forecasting method possibly predict what millions of institutional traders, banks, hedge funds and retailers will be doing in the future.
piphunt11
  • #63
  • Nov 10, 2014 8:24pm Nov 10, 2014 8:24pm
Quoting hanover
{quote} Fair enough. Agree that the trader must be willing to accept some risk, to make a worthwhile return; but also while sizing positions conservatively enough so that any 'unexpected' sequence of losses doesn't cause unacceptable drawdown. IMO it's ultimately about achieving a balance between return and risk that one feels personally comfortable with.
I agree with your comments.
The purpose of knowledge is action, not knowledge
  • #64
  • Nov 10, 2014 8:57pm Nov 10, 2014 8:57pm
Quoting hanover
{quote} MYTH: if a programmer has typed 5911 posts on FF (5912 now), then he must also be a consistently profitable forex trader.
These are the best 5912 (now 5915) posts written here on Forex Factory. This is no myth.
The Thief of Wall Street
  • #65
  • Edited 9:47pm Nov 10, 2014 9:33pm | Edited 9:47pm
Quoting alifari
{quote} IMO here is how a typical retail trader thinks about preservation of capital. They focus too much on finding the A+++ 2-3 trades per week/month and when they finally get into a trade and as soon as market starts turning in their favor they often move to break even cause they think it's a free trade now and that their ultimate job is to preserve capital and most often their trade ends in breakeven and they feel good about it cause they didn't lose any money on that trade. Well if they were so afraid of losing money, why did they placed a...
Looking at it from a different angle. Unlike adequately capitalized traders, under-capitalized traders lose it all in a bid to preserve their capitals. A prudent trader is not expected to set Stop Loss so tight that it gets hit in even a normal market movement. If one does, is taking a blind chance and this chance taking is completely against the primary aim of capital preservation. Generally, trades with tight Stop Losses are taken not to preserve the capital but to gain more than amount risked. A good r/r trade provides no assurance of capital preservation, but a good trade and its management does. An adequately capitalized trader would rather keep position size small in the beginning than to enter with a Stop Loss that is within market's normal volatility, position can be later topped up when initial entry is safe enough. This may reduce profit target of well-capitalized trader while risking same percentage of capital as that of under-capitalized trader but the primary objective of capital preservation is achieved.
The Thief of Wall Street
  • #66
  • Nov 10, 2014 9:50pm Nov 10, 2014 9:50pm
Myth: High Account leverage is bad

Who in their right mind would want to park 50 or 100k at their Broker?
  • #67
  • Nov 10, 2014 9:55pm Nov 10, 2014 9:55pm
Quoting Carlsberg
Buy low / sell high, one of the better myths, as it usually works ok... until it does n't https://www.youtube.com/watch?v=LvPCtrOP4mc
LOL Carlsberg, that video really made me laugh

"Look out ladies, look out. Bear market, baby!"

"The market belongs to ME!"

"I'm a bear. Yaaaa. I'm a bear. Oh yeah!"
Please check out my blog at https://from-zero-to-hero . net
  • #68
  • Nov 10, 2014 10:13pm Nov 10, 2014 10:13pm
Quoting hanover
Without wishing to be unkind to anybody, I think that Joel Rensink sums it up accurately: "Most people think that communities like this forum make it easier to learn how to trade, but I am certain the opposite is true. If most of the posts are from non-winners the only logical reaction for an individual who wishes to win is fade the advice you see in these forums. Everyone posting has a motive, even me. Most motives are simple self promotion, aspiring traders trying to make themselves feel good, look smart. A few posters have the motive to help...
Hey Hanover,

I'm trying to decide if I agree with that quote from Joel Rensink (who I've never heard of before), and I guess I agree with most of it, except for one huge part.

It is NOT a case of the blind leading the blind. There are many successful and profitable traders on this site, and although it is true that 99% (or so) or traders AROUND THE WORLD (including the ones who are not Forex Factory members) probably lose money, I would bet you that number is highly distorted when it comes to a site like Forex Factory, which literally focuses on trader development. My point is that on a site like Forex Factory, instead of having only 1% profitable traders, I bet the figure is somewhere closer to double-digits, who knows, maybe even 10% or higher still.

The reason I say this is because the members that do come to this site and actually post have already shown passion towards trading and the beginning signs of resolve to figure out any of their problems, which in my opinion, counts more than anything else.

My point is simply that whether you are a beginning trader or not, if you come to a site like Forex Factory with the proper attitude and a real resolve to find answers to your questions, then you have better-than-average chances to succeed. It is not simply a case of the blind leading the blind. The members that come to this site that are TRULY determined to succeed will let NOTHING stand in there way, and in that sense, websites and forums like this can be extremely helpful, as it helps many people find their way. Even if that way might come from a trader who is not profitable himself, it does not mean that the method cannot be used profitably by someone else.
Please check out my blog at https://from-zero-to-hero . net
  • #69
  • Nov 10, 2014 10:56pm Nov 10, 2014 10:56pm
Quoting piphunt11
Thanks Smash, maybe i was just being a bit facetious when i asked you to educate me, but in any case thank you. I will read the above threads (already spent time on Nihilist's thread) I do understand stochastics, theory of probability in random (non deterministic) events. I would encourage you to also read and understand the difference between structured and non-structured randomness (stochastics can be applied well in structured randomness (finite variables) but becomes difficult to apply in non-structured randomness with infinite variables. IMHO forex markets are non-structured randomness, there are endless variables contributing to price movement. In essence using stochastic in forex is like solving an non-linear equation, like forecasting weather, the further out in time the less reliable it becomes. All to say, there are no indicators that can analyze past performance to predict future events. Think about it logically, how can an indicator or any forecasting method possibly predict what millions of institutional traders, banks, hedge funds and retailers will be doing in the future.
Hey Piphunt,

Thought I'd respond before I head off to bed. I hope the information I've provided can be useful, not just for you, but to others here on this site as well.

The one thing that I really wanted to respond to is the statement I've highlighted in bold. This is exactly correct. Using stochastics is very much like predicting the weather, in the sense that you have described.

But I still believe you can predict the future. Not very far out, like you said. But even predicting a 1-minute chart is still predicting the future, so yes, it absolutely can be done. I feel very confident that I could pull up any FX pair and tell you whether it will go up or down in the next 5, or 15, or 30, or so minutes, and yes, be right. But if asked to predict whether price will be up one week from now, one month, or one year, then that is a much more difficult question and cannot be done with the same level of success as a shorter TF.
Please check out my blog at https://from-zero-to-hero . net
  • #70
  • Nov 10, 2014 11:59pm Nov 10, 2014 11:59pm
The "systems" myth and my favourite trading myth
I think the biggest myth is that there are repeated, easy to understand processes in price dynamics. If there where such a thing the hedgefunds would not need all the fancy research and all the fancy neural networks and such things: They would just have their RIS/MACD or what ever and when it gets to "overbought" or some such easily defined reading they would sell and vice versa. And if that where the case, it would stop being the case since it would be exploited and thus remove that repeating process of price dynamics.

But on the other hand, the thread calls for a "favourite" trading myth. So implying that there are myths of great value. This is a take on myths that are controary to popular, societal ideas of what myths are. In a big way before the 16th century in europe myths had a very different meaning. Before the 9th century that meaning was even more so, and before the middle of the 4th century this was even more so. To people who used myths in this way, the myths told a story, a truth wider and deeper then other ways of telling about things. This is the kind of myths we can read in gilgamesh, the odysée and the illiad, the old testament, the quran. But most often these myths where for different reasons never written down. If i apply this sort of "myth" thinking the perspective turns and becomes something very different from what i was talking about in the above section.

It cannot be "known" what any complex process is going to be, therefore to act upon what is "known" about what price is going to be is an impossibility. What price will be can only be "felt". Only the gods "knows" what price will be. But the gods speak in "feeling" to those who are willing to listen. From their mountains, from their clouds, from their forests, from their desserts, from their oceans, from their plains they speak to all of us for we are akin to them and can perceive their language, their communications. For their voices to be heard our minds needs to be set to the way they are communicating.
My signature is: "Classified".
  • #71
  • Nov 11, 2014 12:15am Nov 11, 2014 12:15am
Quoting smash1820
{quote} Hey Hanover, I'm trying to decide if I agree with that quote from Joel Rensink (who I've never heard of before) .......
Fair enough, Smash, I have no idea how many FF members are long term profitable. It's not that important to me. Having said that, I certainly don't believe everything that I read.

Anyway, time for me to disappear, as I believe some of my comments have diverted the thread from its topic of 'trading myths'.

Cheers and profits,
David
  • #72
  • Nov 11, 2014 12:18am Nov 11, 2014 12:18am
I like the scholastic myth. Reading books, buying online help, courses. All that should be out the retail trader's system in a couple months.

A real trader knows how to buy from a spastic seller looking for an exit & can later sell it back to them at a higher price when the masses overshoot the security's value.
ForexOrderFlow.com Return This Year: 1.9%
  • #73
  • Edited 12:38am Nov 11, 2014 12:24am | Edited 12:38am
Quoting Shug
{quote} Maybe you should hit up the Youtube comments section when you feel like trolling...tool Posts like this really piss me off, because they specifically target new people who are simply exploring new interests, maybe looking for a way to become financially independent. While trying to expand their minds and most likely are already a bit skeptical, they stumble upon a post like this, (from an author who knows it's not true) and the message they get is: 'you can't succeed, let the people who know what they are doing keep doing that. YOU should...


Nope.
People do not need to be encouraged. They need to practice "true diligence" before investing time / money into this game.
What they will find is amazing and hopefully they will put their energy into something else... a real job for example.
No one ever looks at the playing field. Either because one is blinded by greed, or one is ignorant and believe in the hype.
(BTW, are you a broker, "mentor", trainer, software vendor ... ? )

... I will illustrate ==> fact: http://leaprate.com/2014/10/fxcm-see...t-414-billion/
Reading between the lines what does it really mean except that forex brokerage is obscenely profitable ?

Let's say the average volume per month is 300 billion = 50,000,000 per month in revenues from spread and commission (I am not including the usual shenanigans)
Let's group all the customer accounts into a "composite account".
Our "composite trader" would have to make at least 50,000,000 per month just to cover spread and commission.
Is our "composite trader" profitable ?

Certainly not.
==> https://www.ecb.europa.eu/paym/group...bebe1c60d92ce4
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... and that 50,000,000 is just one broker!
The amount of money that is lost every month is astronomical.

Of course it's possible to make a few pips here and there, however our "composite trader" needs a solid reality check, don't you think?

As you mention, the message that "new people" should get is indeed correct: 'YOU should just turn around before you even get started, because you will fail'
But you know very well that is not the message they get. The message is on every web page on the internet "Forex: come for a swim, the water is fine" (:
  • #74
  • Nov 11, 2014 12:27am Nov 11, 2014 12:27am
My favourite trading myth is that there is a counterparty to the Japanese currency.

  • #75
  • Nov 11, 2014 12:34am Nov 11, 2014 12:34am
Quoting Orly
My favourite trading myth is that there is a counterparty to the Japanese currency.
rofl lmfao sorry i am still up (but going to bed now), but this one really made me laugh..... lmfao... ..

NICE!

Quoting Mingary
Of course it's possible to make a few pips here and there, however our "composite trader" needs a solid reality check, don't you think?
PS: Mingary, I read your post above. Nice. That's why I like you, man... I believe everyone needs a "reality check" now and then. Survival of the fittest...
Please check out my blog at https://from-zero-to-hero . net
  • #76
  • Nov 11, 2014 12:39am Nov 11, 2014 12:39am
Quoting Chicky
{quote} That's not true......................... I learned Kama Sutra online for free.

Could you share the link please?
Let it turn and find your entry.
  • #77
  • Nov 11, 2014 2:33am Nov 11, 2014 2:33am
Quoting Cb92
{quote} This one made me laugh. Profit targets are not defined by the trader. Risk/reward is a criteria for entry, for those that use it correctly as part of their strategy. If you need me to explain; stop trading immediately.

I know what you mean, but I was using a sort of mathematical definition of RR.

What you mean is, you take a look at a possible entry, and you think "ok, what's my risk? what's my reward? if I enter long here my SL will have to go below this hammer formation, my profit target will be the previous swing high, so that's a 1:3 risk reward ratio ... great! I'll take it!" Or something to that effect.

Problem is, if this worked, everybody would be profitable. What you think is 1:3 will in most cases just be a coin toss, and it will be 3 times as hard for price to reach your TP than your SL, because your RR is just all in your head, the market doesn't care about your analysis.
  • #78
  • Nov 11, 2014 2:37am Nov 11, 2014 2:37am
Quoting hanover
I used to think that trading myths existed, but nowadays I think that paradoxes is probably a more accurate term. For example, the OP states that simply aiming for high RR trades (as a profitable approach) is a myth. In my experience that’s true, but it doesn’t alter the fact that, if you examine the performance stats of traders who’ve been profitable for more than 5 years, the vast majority of them have...

  • #79
  • Nov 11, 2014 3:55am Nov 11, 2014 3:55am
Quoting Mingary
{quote} Nope. People do not need to be encouraged. They need to practice "true diligence" before investing time / money into this game. What they will find is amazing and hopefully they will put their energy into something else... a real job for example. No one ever looks at the playing field. Either because one is blinded by greed, or one is ignorant and believe in the hype. (BTW, are you a broker, "mentor", trainer, software vendor ... ? ) ... I will illustrate ==> fact: http://leaprate.com/2014/10/fxcm-see...t-414-billion/...

It's kinda odd using the simile of the Composite Trader in a zero-sum game like forex! As if the Composite Trader could ever be profitable, even if it weren't for spreads and commissions!
  • #80
  • Edited 4:44am Nov 11, 2014 4:18am | Edited 4:44am
Lower timeframes have more 'noise' :

This I discovered from experience to be untrue. But how to attempt to prove it objectively?!

Well, firstly, we could show professional traders a few charts and ask them to pick the 1M ones from the Daily ones. My guess is the result will be random, i.e. they won't be able to tell which is which.

I know, this is just the imagined result of a non-existent experiment. Well okay then, I'll give you a real experiment!

Aronson, in his book Evidence-based Technical Analysis, references the following paper:

F.D. Arditti, "Can Analysts Distinguish Between Real and Randomly Generated Stock Prices?," Financial Analysts Journal 34, no. 6 (November/December 1978), 70.

Needless to say, the answer to the paper's title is no! Aronson says: "Expert chartists are unable to distinguish actual price charts of stocks from charts produced by a random process."

Now, my question to you is, if professionals can't tell between real and fake charts, do you think they could tell between real 1M and real Daily charts? If the instrument is volatile enough (so that it doesn't produce choppy price action), my guess is no!

Secondly, it seems that professional traders often do scalping too. Time and time again in documentaries I watched professional traders claim to go into and out of a position in 15 minutes or less. How can they do that, unless they're trading the M5 or M1 charts? Some of them even trade the tick charts! Would they be doing that if the lower timeframes were unreliable?

If you've ever traded the 1M charts, you know they look and act just like the 'bigger' charts, with all the usual patterns and formations. It might even be the case that the patterns evident in the larger charts are just the product of the price action happening in the smaller charts.

So, my conclusion is, don't say M1 is noisier than Daily, unless you can actually tell them apart!

I leave you with two pics. One of these is M1 and the other is H4:

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