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Trading Myths 35 replies

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What are your favorite trading myths?

Quoting numbnuts
That the learning curve will be shortened because you are really really smart and determined. That if you trade 15 hours a day for a year, you'll have the same experience as somebody who has traded one hour a day for 15 years.
Interesting thought.

So, where is the breakeven point? Is trading three hours a day ok? Will that still be attributed to three 'full' hours and thus you only have to do that for 5 years? Where do the hours spent trading become 'wasted'?

I'd guess that anywhere from 1-6 hours are probably helpful for most people, but after that the attention and retention start to fade and you probably need a day to rest/reset and get yourself ready to re-absorb new experiences from another day of trading/researching.

In any case, people are so different, it is only a vague gauge and will also be dependent upon many other factors, such as their environment, available resources, mentors, etc.

* Being being really really smart can be a down-side, as you might be a person that overthinks the process and detail and gets lost amid the various indicators, news items, fundamental issues, etc.

* Determined - pretty much a useful trait, unless there is so much and the person is actually headstrong/bullheaded/stubborn. (So, in moderation as with most things)
Quoting Nefser
{quote} Interesting thought. So, where is the breakeven point? Is trading three hours a day ok? Will that still be attributed to three 'full' hours and thus you only have to do that for 5 years? Where do the hours spent trading become 'wasted'?
I don't know, lately I'm starting to think that for a home retail trader, any experience gathered above 2 - 3 hours a day doesn't really accumulate in the long term. For the first five years you don't know your asshole from your elbow, no matter how hard you try, and I wouldn't consider somebody an accomplished trader without at least ten, maybe fifteen years solid trading behind them.

I'm not saying intelligence and determination are unnecessary - of course you need them - but there is no substitute for real time experience. You simply need to have your head in the game for many years - traded through all the market's cycles (long, medium and short term cycles) - learn how to trade, and how to manage yourself as a trader, in all the different market environments you may experience. The very nature of financial markets is constantly changing - if you trade for a couple of years you might become good at trading in one particular environment but long term you wont survive unless you learn to adapt, and to do that takes time. There are no shortcuts.
si hoc legere scis nimium eruditionis habes
Quoting numbnuts
{quote} I don't know, lately I'm starting to think that for a home retail trader, any experience gathered above 2 - 3 hours a day doesn't really accumulate in the long term. For the first five years you don't know your asshole from your elbow, no matter how hard you try, and I wouldn't consider somebody an accomplished trader without at least ten, maybe fifteen years solid trading behind them. I'm not saying intelligence and determination are unnecessary - of course you need them - but there is no substitute for real time experience. You simply...
Mirrors my own thoughts and experience. Anybody who achieves consistent profit within 5 years' apprenticeship certainly has a lot more aptitude than me, LOL.

Or perhaps they've just had a darn good mentor.
Quoting piphunt11
{quote} 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....
You are incredibly stupid, you know that?
Watch the documentary "Trader" its about a guy running a fund.. he manages 100-200mil.. in the 80s.. his partner then prints out the chart for the market in the 20s crash.. to compare it with the present.."patterns" etc.. he made a fortune..trippled his money in one day.. because he did..what was done in previous history..by recognizing... ¤drum roll¤... a PATTERN!

Masses always work as one single mind, history always repeats itself.
We are in 2015 soon, we got iphones, nano technology, cloning.. yet we still have beheadings and war in countries..

Now if you use a pattern 100,000 retailers and 100banks use.. its less effecient.. because everone will try to sidestep you.. get inbefore..
thus polluting the R/R and the profitability..


Time to wake my son, use this fine technology.. look in the uknown.
Probably the worlds best currency trader.
Quoting Wheathermakr
{quote} You are incredibly stupid, you know that? .........


I couldn't resist commenting on the irony here..... you know the word 'weather' has only one 'h', right?

si hoc legere scis nimium eruditionis habes
Quoting AlexCy
99% of forex traders fail to make money While this isn't an absolute myth, the context in which it is said is misleading. What is the misleading context? It's comparing trading to ordinary (paid) jobs: paid workers make money about 100% of the time I would assume (otherwise they wouldn't be workers, they would be unemployed), whereas most traders fail to make money. But why lump trading together with paid jobs? After all, we've heard it said countless times that trading is, and should be treated, as a business. So, if we compare trading to businesses...
Hm...I think you are overestimating the ability of traders. There are various researches who analyzed broker data to evaluate the performance of traders. All of the research findings show that traders perform even worse than the "95% of all traders fail" myth.

 

  1. 80% of all day traders quit within the first two years.
  2. Among all day traders, nearly 40% day trade for only one month. Within three years, only 13% continue to day trade. After five years, only 7% remain.
  3. Traders sell winners at a 50% higher rate than losers. 60% of sales are winners, while 40% of sales are losers.
  4. The average individual investor under performs a market index by 1.5% per year. Active traders under perform by 6.5% annually.
  5. Day traders with strong past performance go on to earn strong returns in the future. Though only about 1% of all day traders are able to predictably profit net of fees.
  6. Traders with up to a 10 years negative track record continue to trade. This suggest that day traders even continue to trade when they receive a negative signal regarding their ability.
  7. Profitable day traders make up a small proportion of all traders – 1.6% in the average year.However, these day traders are very active – accounting for 12% of all day trading activity.

http://www.tradeciety.com/24-statist...rs-lose-money/

Learn from yesterday, live for today and hope for tomorrow.
Working With Multiscreens Filled With Complex Indicators Proves That You Are A Pro Trader

What a dummy, bs, crap huh? And they show it all over the news, economic documentaries and magazines, movies.. holy crap.. I personally know people who solely work with candles and trendlines... that's it man.. the rest is like cowboy-playing when we were kids.. having pistols.. and masks.. and a wooden horse.. everything should be look like it is real.. yeah we boys love to act like heroes.. secret agents.. soldiers they show in movies.. I am damn sure in reality nothing was like that and so it isn't in trading.. my half cents..

Happy Trades
Be a seer, not a looker!
Ata's Trend Hunter All Time Return: 26.8%
Quoting Wheathermakr
{quote} You are incredibly stupid, you know that? Watch the documentary "Trader" its about a guy running a fund.. he manages 100-200mil.. in the 80s.. his partner then prints out the chart for the market in the 20s crash.. to compare it with the present.."patterns" etc.. he made a fortune..trippled his money in one day.. because he did..what was done in previous history..by recognizing... ¤drum roll¤... a PATTERN! Masses always work as one single mind, history always repeats itself. We are in 2015 soon, we got iphones, nano technology, cloning.....
Are you referring to Paul Tudor Jones? In that case, I'm gonna pass. He apparently is so embarrassed about that documentary that he has tried to have it blocked from being shown again.

But thanks for your insight, please let me know how you really feel next time.
piphunt11
My favorite myth: "just enter trades when R:R >1" , as if we could estimate take profits beforehand.
Many people don't close trades until they reach the desired R:R. At then suddenly the trend goes against you.
And any profits made are lost.
Quoting Mingary
The biggest and most dangerous myth: You can make a living from trading the forex.
I trade forex and this is what I do for living and believe me forex is the best thing ever happened to me, I make loses too but overall I can make living out of forex
Money never sleeps I can hear the dollar calling me
Prices are going higher/lower because more traders have bought rather than sold and vice versa. Back to basics and yet you would be sometimes surprised how many still believe that.
Trading for a living? No problem.
I can see many traders not agreeing with this but one of the worst in my opinion is that you shouldn't take a strategy live if it's only been forward tested on demo like 6 months or a year or whatever. Man by the time we get round to actually having enough forward tests the excitement will have worn off. I'm all for some forward testing on demo but take risks...
My favorite myth is about money management. It's such a popular concept and so emphasized and people think that only with a good money management they can achieve unheard success. When in fact, most traders by now surely use MM in some form or other yet they still lose, because of no edge. It's funny that people think that they can be succesful just because they have good money-management when in fact using only money management is like playing slot machine with 1 cent bets, you can last longer but eventually you will lose all your money slowly. The edge is the top priority in my opinion.
"There's a sucker born every minute" - P.T. Barnum
Quoting Proximus
My favorite myth is about money management. It's such a popular concept and so emphasized and people think that only with a good money management they can achieve unheard success. When in fact, most traders by now surely use MM in some form or other yet they still lose, because of no edge. It's funny that people think that they can be succesful just because they have good money-management when in fact using only money management is like playing slot machine with 1 cent bets, you can last longer but eventually you will lose all your money slowly....
Good money management is vital for maximising profits or to mitigate losses, it is a basic principal governing everything that involve money. Of course in forex, good money management will be exploited by profitable traders and ameliorated by losing ones. Professional good money managers is not necessary a good and profitable forex traders. In my opinion and experience professional gamblers are the best money managers and manipulators I have seen and dealt with.

Good trading and good luck.....

GS.
Quoting genghistar
{quote} Good money management is vital for maximising profits or to mitigate losses, it is a basic principal governing everything that involve money. Of course in forex, good money management will be exploited by profitable traders and ameliorated by losing ones. Professional good money managers is not necessary a good and profitable forex traders. In my opinion and experience professional gamblers are the best money managers and manipulators I have seen and dealt with. Good trading and good luck..... GS.
Ok but these are just words, no offence but i think talking about it (money management) all day long wont help.It all about the numbers, those dont lie. Money management like everything else can be too subjective and non-scientific. We need the exact probabilities to atleast understand what the heck is going on in the markets, without that, its just a blind guess. If we got the probabilities, and its in our favour then we can win over and over again, and of course adjust the risk according to the probability.

What do i earn if i have a conservative money management (0.5% of account risk/trade) if i lose 200 times in a row? Nothing, i still lost. So you see scaling the position down wont avoid the losses, it will just make it a slower death, but the money will still die. That is why the slot machine with 1 cent bet analogy fits perfectly the flawed MM prioritizing traders.
"There's a sucker born every minute" - P.T. Barnum
  • Post #136
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  • Edited at 3:12am Nov 24, 2014 1:59am | Edited at 3:12am
Quoting Proximus
{quote} Ok but these are just words, no offence but i think talking about it (money management) all day long wont help.It all about the numbers, those dont lie. Money management like everything else can be too subjective and non-scientific. We need the exact probabilities to atleast understand what the heck is going on in the markets, without that, its just a blind guess. If we got the probabilities, and its in our favour then we can win over and over again, and of course adjust the risk according to the probability. What do i earn if...

I agree if MM = money management, however let's look at TM - Trade Management
What if the system allows for 200 losses in a row ? and 1 trade in 200 is a winner (and brings the account up)?
There is no edge in this case ...
This mean a trader can throw darts at a chart to pick trades at random (no edge) and still come out ok as long as the 200 losers are manageable due to TM..
In Trading and Combat : " Expect light resistance." " You'll have strong support."
  • Post #138
  • Quote
  • Edited at 1:17pm Nov 24, 2014 2:15am | Edited at 1:17pm
Quoting Proximus
My favorite myth is about money management. It's such a popular concept and so emphasized and people think that only with a good money management they can achieve unheard success. When in fact, most traders by now surely use MM in some form or other yet they still lose, because of no edge. It's funny that people think that they can be succesful just because they have good money-management when in fact using only money management is like playing slot machine with 1 cent bets, you can last longer but eventually you will lose all your money slowly....


(assuming that we're using Ryan Jones' definition of MM, i.e. edge = entries+exits; MM = position sizing. Some traders see exits as part of MM, which adds unnecessary confusion IMO)
Quoting piphunt11
{quote} Are you referring to Paul Tudor Jones? In that case, I'm gonna pass. He apparently is so embarrassed about that documentary that he has tried to have it blocked from being shown again. But thanks for your insight, please let me know how you really feel next time.
What? i make a living on patterns.
case closed.
Probably the worlds best currency trader.
Quoting Mingary
{quote} I agree if MM = money management, however let's look at TM - Trade Management What if the system allows for 200 losses in a row ? and 1 trade in 200 is a winner (and brings the account up)? There is no edge in this case ... This mean a trader can throw darts at a chart to pick trades at random (no edge) and still come out ok as long as the 200 losers are manageable due to TM..
Ok but whats the point of BE, a long term gambler, if lucky at the end of his career gets to breakeven, very few very lucky people get to take out some from a casino. My research shows perfectly that the FX market (stock market is not) is exactly like a slot machine. It is a wealth redistribution mechanism, where obviously the big banks extract the most wealth from it. The only thing that separates the FX market from a classical gambling mechanism is that, the probabilities are not constant. While a slot machine has the same payout and same probability always, just like a roulette table. The market has no constant probability, obviously at bank holiday days when there is no event the probability is 50-50, while if there is an interest rate anoouncement, obviously that changes. A 1% interest rate increase already pushes the probability in favor of that currency, no doubt about it, this is the only way to extract money from the market, to have an edge.

Besides the 200 cons losers are an exxageration so lets say its 30, but in the sense that the maximum is 30, while there can be a configuration like:
1 win, 3 loss, 2 wins, 30 loss, 10 win, 50 loss = and bingo you are already at -70% DD if you risk 1%.

If you are at a 50-50% probability you probably never lose your account you always end up at breakeven in the long term, BUT just like a roulette table the market is built against you because the SPREAD will always tilt the probability against you, while the odds remain the same, the payout is decreased by the spread, so if you play this game long enough, without edge, you will eventually lose the entire account, just like in roulette. You can win the first 20-30 rounds easily in roulette too, but eventually you will lose all your money as long as you keep playing.

The only way to beat the market is to always have an edge bigger (which generates surplus payoff >0 or expectancy >0) which is also higher than the spread, or in other words, the average payout of each trade, in pips must be always >0 including spread. Otherwise you will eventually lose all your money, and who would want that?

The other risk that we got, even if we have a positive edge, is that if the winrate is low,then the consecutive losses could be high, this is why money management is critical, to always have a % risk of account which is adjusted to the maximum consecutive loss number. If you maximum probable cons losses are to say 10, then you can easily risk 7-8% of the account because its highly unlikely that you will lose it, it doesnt mean that you wouldnt, it just means that its highly unlikely. We must have the probability numbers too, blind guessing is not good enough.

But if your maximum probable cons losses are 50, then you might wanna risk less than 1% of the account to have an acceptable DD. And not get emotional if you lose 10 times in a row, because you know that you are witihn your risk limit and expect these consecutive losses and even prepared for worse.

But this is only useful after you have an edge, as i said if the probability is against you, this trick wont save your account, it will just slow down the inevitable...
"There's a sucker born every minute" - P.T. Barnum
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