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I've figured out why so many people lose money in Forex

  • #441
  • Mar 4, 2015 3:35pm Mar 4, 2015 3:35pm
Quoting replaced
{quote} That's a great way to increase trading costs and lose money even faster. How do you know that it went in your direction? {quote} It depends how you define consistently. It's certainly possible for someone to become a lottery winner, as in extremely lucky. In fact, it would be unusual if there weren't lucky people out there given the tens of millions of people who have tried trading. There's a ton of reasons why someone might be able to claim that they made a lot of money trading. One could be outright lying and forging documents (Bernie...
It is obvious you know nothing about market structure, fundamental analysis and technical analysis, money management, and trade management (TRADING). I've been assuming all along that this thread is more a joke than a serious discussion. But let's consider your comments for a minute. You said my approach would increase transaction costs and lose money faster. Than what? Your approach jumped into the market with 5 standard lots (which is not possible for an account with $10,000, and you did not bother to address that in your last post). Transaction costs would be the spread on the 5 lots. However the risk you took was on 5 full lots and you held them for -78 pips. In my example, I start with 1 standard lot with a 20 pip stop. If it goes against me I'm out $200. That only happens 1 in 10 trades for me. When trade 1 is up 40 pips a second entry opportunity appears. Enter with 2 standard lot with a 20 pip stop. If the stop in trade 2 gets hit, then trade 2 is -40 but trade 1 is +20 so you are really only risking 20 pips. When trade 2 is up 30 or 40 pips, you get a pullback for trade 3. Enter trade 3 with 2 standard lots and then ride all 3 trades to targets. Transaction costs are the same here as with your all-in-at-once approach -- the spread on 5 standard lots. Through the entire run the most I risk is $200. I used this approach in both the GN and EN last night and this morning. It's what a lot of people do every day.
  • #442
  • Mar 4, 2015 3:40pm Mar 4, 2015 3:40pm
Figured maybe somebody here who actually understands the market could use this? Just a thought.
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  • #443
  • Mar 4, 2015 3:53pm Mar 4, 2015 3:53pm
Quoting GEfx
{quote} It is obvious you know nothing about market structure, fundamental analysis and technical analysis, money management, and trade management (TRADING). I've been assuming all along that this thread is more a joke than a serious discussion. But let's consider your comments for a minute. You said my approach would increase transaction costs and lose money faster. Than what? Your approach jumped into the market with 5 standard lots (which is not possible for an account with $10,000, and you did not bother to address that in your last post). Transaction...
This is exactly my daily routine. I do my analysis, choose 2-3 pairs I want to trade and compound, compound, compound. Always moving stops to break even along the way. If/when I get stopped and I still feel strong in my analysis, I repeat. This is the way you can make 14,16,20% on a trade risking 2%. Maybe replaced should open a demo account and try it.
  • #444
  • Mar 4, 2015 3:57pm Mar 4, 2015 3:57pm
Today, for example, I took an amount which was 2% of my total trading capital. I risked 25% of that amount but had a return of 105%. So basically a little 2% return on my total capital risking .5%. The key is I never had more than 2% of my capital with the broker, but that's another argument.
  • #445
  • Mar 4, 2015 4:30pm Mar 4, 2015 4:30pm
Quoting GEfx
{quote} It is obvious you know nothing about market structure, fundamental analysis and technical analysis, money management, and trade management (TRADING). I've been assuming all along that this thread is more a joke than a serious discussion. But let's consider your comments for a minute. You said my approach would increase transaction costs and lose money faster. Than what? Your approach jumped into the market with 5 standard lots (which is not possible for an account with $10,000, and you did not bother to address that in your last post). Transaction...
Quoting Profit Daily
Today, for example, I took an amount which was 2% of my total trading capital. I risked 25% of that amount but had a return of 105%. So basically a little 2% return on my total capital risking .5%. The key is I never had more than 2% of my capital with the broker, but that's another argument.
This is the way we make the dough, make the dough, make the dough. This is the way we make the dough so early in the morning.



EDIT: Good to "see" you thodie.
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  • #446
  • Mar 4, 2015 5:32pm Mar 4, 2015 5:32pm
Quoting replaced
No, it's how people lose money in Forex. Because short term traders are basically flipping a coin, a 1% loss in equity requires a 1.01% gain to break even.
By the way Replaced, did you know that you could make money trading even if your trades are totally random?

Quote from the book "Trade your way to financial freedom" by Van K. Tharp:

"Tom Basso designed a simple, random-entry trading system. We determined the volatility of the market by a 10-day exponential moving average of the average true range. Our initial stop was 3 times that volatility reading. Once entry occurred by a coin-flip, the same three-times-volatility stop was trailed from the close. However, the stop could only move in our favor. Thus, the stop moved closer whenever the markets moved in our favor or whenever volatility shrank. We also used a 1% risk model for our position-sizing system. We ran it on 10 markets. And it was always, in each market, either long or short depending upon a coin flip. It made money 100% of the time when a simple 1% risk money management system was added.The system had a (trade success) reliability of 38%, which is about average for a trend-following system."

So, if you can make money with random trades (assuming you use the proper money management technique), imagine what you could do with a real trading system.
Each losing trade is an opportunity to learn
  • #447
  • Mar 4, 2015 8:25pm Mar 4, 2015 8:25pm
In my opinion, one of the most common factors behind loss of money in Forex Trading is the mindset possessed by some traders when they begin trading. Some go in with the thought that they are going to become millionaires quicker, while others think of only profits. That's big mistake because from my experience, Forex Trading is no get rich quick scheme. It requires patience and most of all the ability to digest unexpected losses.
  • #448
  • Edited 8:57pm Mar 4, 2015 8:43pm | Edited 8:57pm
Quoting moonshot
In my opinion, one of the most common factors behind loss of money in Forex Trading is the mindset possessed by some traders when they begin trading.
Not at all, most traders fail because playing the Forex market, the stock market or the Futures market is NOT a zero sum game. That's the number one reason.

Let's suppose we both play a Head or Tail game with a perfectly balanced coin. If Head comes up I will give you $100, otherwise you will give me $100.

In the long run you cannot make (or lose) any money playing that game. Mathematically, it's a fair game.

Ok, let's change the rules just a "little" bit: from now on, and before you toss the coin, you will pay me $1 upfront just for the privilege of playing that game. Now the game is no longer fair, because in the long run you will lose $1 per bet. If you play 1,000 times you will lose $1,000 on average, for example.

Now replace the $1 fee (in this example) with the word spread (or transaction costs) and you will quickly realize why the overwhelming majority of traders lose money in the long run, the (mathematical) odds are against the trader right from the start.

See, you cannot, repeat YOU CANNOT, make money betting that way if someone (here the broker) takes some money upfront (here the spread/commissions) each time you place a bet (open a position). It is mathematically impossible. If you trade 2,000 times with a 3 pip spread you WILL lose 6,000 pips in the long run, on average, if your system does not offer any mathematical edge, simple as that.

Of course there is nothing illegal about the spread, but that's the reality of trading. And unless you can beat the spread (transaction costs), it is IMPOSSIBLE to make any money in the long run
Each losing trade is an opportunity to learn
  • #449
  • Mar 4, 2015 8:52pm Mar 4, 2015 8:52pm
Quoting replaced
I think I've figured out why so many people lose money in Forex. I think that there are three main factors involved. They would be commissions, leverage, and volatility. The first factor is commissions. If a commission is 0.2, on 10k that's just 20 cents. Not bad, right? Wrong. You'll obviously need to close the trade so that's 0.4 pips roundtrip. Then if leverage is involved, such as 20x. You're paying commissions on 20x your money which means 20x the cost. So that 40 cents roundtrip just turned into 8 dollars per round trip trade, or 0.08% of...
trading is not the same with gambling. leverage and commission are not the one that destroy people account. it's their lack of discipline, money management, and the technique itself. trading is more like taking penalties in football. messi might miss 2 out of his last 3 penalties but would he miss 15x if we give him 30x opportunities to take the penalties? Instead of having 50% chance of each trade (like flipping coin), you can increase this to 70% (with assumption of 1:1 R:R ratio). some traders prefer 50% chance or even lower but with much better R:R ratio. it totally depends on your strategy. Thing that most people fail to understand is that every method has its own drawdown and series of bad weeks. People keep switching their strategy after few bad weeks or one bad month. They shouldn't. if you test a strategy for more than hundreds of transactions and at the same time you have tested it for more than few years (with backtest and forwardtest) most likely you will survive the market because from my observation market does not make random movement. The same price action behavior often repeats itself over and over again.

The thing that you should adapt is the pips count. You cannot say "more than 40 pips" or whatever your number is because pips count change from time to time. If you have fixed SL or TP most likely one day you will get stopped out easily. That's why people should have flexible lot size depends on the pips count. This way they can always know how much they are risking per trade. Instead of aiming xx pips per trade you should aim for specific target based on your visual observation (such as major S/R or BRN or whatever your strategy tells you)
  • #450
  • Edited 9:33pm Mar 4, 2015 9:09pm | Edited 9:33pm
Quoting rsg10z
leverage and commission are not the one that destroy people account
Like I said in the previous post, the number one reason why traders fail is precisely due to the spread and/or commissions.

You cannot, CANNOT make money in the long run if someone (your broker) is taking money from your account each time you place a bet (initiate a position).

The ONLY way to make money trading is to find a way to beat the spread (transaction costs), end of story.

That's only the first step of course, you can still lose money if you don't follow the exact rules of your system, including the all important money management part. But that's another story.
Each losing trade is an opportunity to learn
  • #451
  • Mar 4, 2015 9:51pm Mar 4, 2015 9:51pm
The problem with the logic that is so false, is that even the highest commission in forex is still the lowest out of all the markets, because there is no "one way trip" in forex you pay ONCE. 2ndly most brokers offer a compromise lower spread and you pay SMALL commission so they make something and you get a lower spread. 3rd.. of all Others markets charge HUGE commissions.. I mean try day trading stocks. (I've done it) and cost me $200-500 per day in just COST Forex comes NO way near it. Even if I take 100 trades I'd still pay pennies in comparison to take 100 stock trades or 100 option or future trades..

Leverage is just how much "margin" per trade you put down THAT's ALL IT IS! It has no other shape of existence, means it cannot be used for ANYTHING ELSE except that specific purpose.

Forex or any type of financial market is not "fixed" unless its Binary, but that's different. That means the probability of an event has an open end. The way that it works 100 traders can look at the same chart take 100 trades and each one will have different set of probability.

The bottom line is this discussion has been already been digested and discussed so many times for those who still don't get it, don't want to get it, don't care about getting it.

The final bottom line is that yes most traders are unsuccessful - nature of the beast. If it was any other way, then it be along the lines of welfare. Financial Markets have existed for over 500 years to my knowledge. There were losers and winners then. People follow the golden path and it doesn't always lead to the stash, but you keep stumbling long enough and you might stumble upon it. Luck has nothing to do with trading, and if anyone wants to compare trading to gambling then if nothing else, it would be like poker. Poker is a game of skill not chance or luck, you play the cards you dealt with, and you can either call or fold.. Forex you can either play and lose more by calling or fold and lose less.. But when you do when you get the pot and if you play right you can have more pots and more pots etc.. Skills are skills.. People who don't have them refuse to except others do just like untalented individuals who look at others and say its not all that, because they lack the same talent and feel prejudice.
There are those who know, and there are those who don't know.
  • #452
  • Mar 4, 2015 9:56pm Mar 4, 2015 9:56pm
Quoting palabara
The problem with the logic that is so false, is that even the highest commission in forex is still the lowest out of all the markets, because there is "noway trip" in forex you pay ONCE. 2ndly most brokers offer a compromise lower spread and you pay SMALL commission so they make something and you get a lower spread. 3rd.. of all Others markets charge HUGE commissions.. I mean try day trading stocks. (I've done it) and cost me $200-500 per day in just COST Forex comes NO way near it. Even if I take 100 trades I'd still pay pennies in comparison to...
Well said.
  • #453
  • Mar 4, 2015 10:23pm Mar 4, 2015 10:23pm
I'll also say this.. when playing forex as a retail investor you are "bound" to play by the rules, you have no control of the game at play. That doesn't mean you can't be a creative player. You can start by identifying your opponents. (Something most retail traders initially don't do). Once you identify your opponents, you need to learn their maneuverings. Now like anything in life things are not "static" they are quite dynamic and when you think you learned it the board switches. Where the next problem lays, traders don't change their behaviors. They find something, and continue doing it even though its clearly not working. So here a colorful scenario, your in a fight. Your opponent has changed its tactics and punching you in the face.. instead of dodging you continue to receive the punches in the face, saying well he will have to stop punching me at some point of time. The logic is so incomprehensible, its straight out dumb. So which once again leads to the other problem, traders don't think about aspects outside the box. The chart is the box, and that's where the logic begins and ends. Other factors are never calculated into it, because most people can't walk and chew gum at the same time.

So next time you ask your self why I am failing you can think well maybe there is more variables in play then I am currently comprehending, and I should analyze everything around.
There are those who know, and there are those who don't know.
  • #454
  • Mar 4, 2015 10:28pm Mar 4, 2015 10:28pm
Quoting palabara
The problem with the logic that is so false, is that even the highest commission in forex is still the lowest out of all the markets, because there is no "one way trip" in forex you pay ONCE.
Hi Palabara:

Even if your Forex broker charges you "only" 1 (ONE) penny ($0.01) to initiate a new position (regardless of its size), traders will STILL lose money in the long run.

The size of the commission (and/or spread) has nothing to do with the equation. When you play a negative sum game (Forex, Futures or Stock market), you WILL lose in the long run, no matter how small the transaction costs are.

And, again, unless the trader can come up with a way to beat the spread and/or commissions (via a trading system), he will lose money in the long run, slowly but surely.

No trader can escape that simple mathematical fact, no matter how hard he tries.

Cordially.
Each losing trade is an opportunity to learn
  • #455
  • Mar 4, 2015 10:33pm Mar 4, 2015 10:33pm
Quoting EarnPipsNow
{quote} Hi Palabara: Even if your Forex broker charges you "only" 1 (ONE) penny ($0.01) to initiate a new position (regardless of its size), traders will STILL lose money in the long run. The size of the commission (and/or spread) has nothing to do with the equation. When you play a negative sum game (Forex, Futures or Stock market), you WILL lose in the long run, no matter how small the transaction costs are. And, again, unless the trader can come up with a way to beat the spread and/or commissions (via a trading system), he will lose money in...
Well theoretically true, but if we were to form a hypothesis and test it, I think the results could be a mixed bag. Statistically slim, but the possibility does lay there if we were to get very accurately technical, about the long term variables at play.. Saying that Regardless of size.. Commission and Spread. As long as they are all above 0 by even a fraction. Lol, I could get very technical with it, but I don't think even with Zero sum its black and white unless its properly tested On the Forex market with Control and Variable group!

Quoting EarnPipsNow
{quote} Hi Palabara: Even if your Forex broker charges you "only" 1 (ONE) penny ($0.01) to initiate a new position (regardless of its size), traders will STILL lose money in the long run. The size of the commission (and/or spread) has nothing to do with the equation. When you play a negative sum game (Forex, Futures or Stock market), you WILL lose in the long run, no matter how small the transaction costs are. And, again, unless the trader can come up with a way to beat the spread and/or commissions (via a trading system), he will lose money in...
I also want to say that.. Point I was initial trying to make with "Cost" is that even other markets which have a high cost of doing business people find success. Even when your dishing out as much money as your making in paying for the glory to trade lol, people are able to turn profit so even more negative elements that a forex trader experiences.
There are those who know, and there are those who don't know.
  • #456
  • Edited 11:58pm Mar 4, 2015 11:34pm | Edited 11:58pm
Quoting palabara
Well theoretically true, but if we were to form a hypothesis and test it, I think the results could be a mixed bag.
You want testing? Here is one.

Choose 100 people from a phone book, at random, and give them a Forex demo account. Invite them to make 1,000 trades. After 1,000 trades (and assuming a 2 pip spread per trade) ask them to show you their profit/loss numbers.

You will discover that, on average, each trader lost 2,000 pips (1,000 times 2 pip spread). Collectively, they lost 200,000 pips (can you guess who is getting all that money?).

Repeat this experiment a thousand times and you will always get the same exact results.

Trade long enough and the spread (plus any commission and slippage) will take all your money (just like in a casino), unless you find a way to beat it.

The sooner traders realize what they're up against, the better.
Each losing trade is an opportunity to learn
  • #457
  • Edited 12:05pm Mar 5, 2015 5:19am | Edited 12:05pm
Quoting EarnPipsNow
{quote} Like I said in the previous post, the number one reason why traders fail is precisely due to the spread and/or commissions...
That's just not true. At least not in my case.
It will affect daytrader or scalper doing zilions of trades and/or targeting just couple pips, but when the spread & commision is just a fraction of SL/T it won't matter much. It's not meaningless but it's not main reason people fail unless you scalp, there it will become an issue.
I paid a lot of due to spread & commisions but my mistakes (= trades I let run agains me for eternity) cost me a lot more. About ten times.
Even Michael Douglas in "Trading in the zone" writes that most traders would be profitable if they just would avoid their biggest mistakes that destroys their accounts. Those biggest loosers where they give away what they made and often much more..
Maybe you were ultra conservative/cautious in your trading experience. Or maybe you are a scalper?

Quoting palabara
The problem with the logic that is so false, is that even the highest commission in forex is still the lowest out of all the markets..Even if I take 100 trades I'd still pay pennies in comparison...to future trades...
Really? Based on what? My experience is that futures are actually cheaper if you can afford it.
Say euro contract, $12.5 per tick(=pip, minimum movement), $9 RT (couple years ago). 1 minimum movement your way and you are in profit with commision covered! And the spread is just one tick. Two ticks at times. (btw margin needed was $1000 intraday, maybe 2k not sure now). And how many times trades goes your way at least 3-5ticks, there's already handsome profit covering couple future comissions.
Same for e-mini S&P futures, just the margin was higher (~4.5k).
Unfortunatelly back then I didn't want the "pennies" that were available but that's another story. )

Can you beat that with FX?
Not in my experience. As you have somewhat bigger spread. I have some 2 pips spread on EU + 1 pip commision (=2pips RT). That means it has to run at least 5 pips my way for me to have a profit. 1tick(=pips) vs 5 pips needed for risk free trade that's an advantage. Of course $12.5/tick is not for everybody...but that's another thing. Pound contract is not that great. Just $6.5/tick so you need at least 2 ticks your way.
Markets wispers, just tune in.
  • #458
  • Mar 5, 2015 11:08am Mar 5, 2015 11:08am
Quoting plukin
but when the spread & commision is just a fraction of SL/T it won't matter much.
No Sir, in the long run the spread (plus any commission) will kill you no matter how big (or small) your stop and take-profit are.

Again, place 1,000 trades with a 2 pip spread and you will lose 2,000 pips on average, if your system has no edge. This loss remains the same regardless of the size of your stop/exit and your trading style (scalper, day-trader, swing trader or long-term trader).
Each losing trade is an opportunity to learn
  • #459
  • Mar 5, 2015 11:54am Mar 5, 2015 11:54am
Quoting EarnPipsNow
{quote} No Sir, in the long run the spread (plus any commission) will kill you no matter how big (or small) your stop and take-profit are. Again, place 1,000 trades with a 2 pip spread and you will lose 2,000 pips on average, if your system has no edge. This loss remains the same regardless of the size of your stop/exit and your trading style (scalper, day-trader, swing trader or long-term trader).
Did you read what I wrote at all? Why should I consider your scenario when I have my own years of data? And I can't say I had an edge back then.
Markets wispers, just tune in.
  • #460
  • Mar 5, 2015 12:12pm Mar 5, 2015 12:12pm
Quoting EarnPipsNow
{quote} No Sir, in the long run the spread (plus any commission) will kill you no matter how big (or small) your stop and take-profit are. Again, place 1,000 trades with a 2 pip spread and you will lose 2,000 pips on average, if your system has no edge. This loss remains the same regardless of the size of your stop/exit and your trading style (scalper, day-trader, swing trader or long-term trader).
You are absolutely correct. What everyone is missing here is your disclaimer "if your system has no edge". Obviously, if your average TP is 100 and average SL is 20 and you win 18% or better of those, you have an edge, if your TP and SL are equal and you win 52% of those you have an edge. The larger your net profit, the smaller % transaction cost.
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