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Brief Story Of My Life and How I Stumbled In Forex Trading

  • #21
  • Dec 15, 2015 9:42pm Dec 15, 2015 9:42pm
Quoting gravitist
I'm sorry to hear about your hard luck, but it won't change by forex trading. In fact, forex will take money from you. Walk away from it, it's not worth it.
Well, I guess that does it. You heard Mr. G. Good night everyone, and off to some other endeavor... lol

Just kidding. Seriously, though. Why so negative? It takes time to learn how to trade. I've been at it for about 4 years, full time. And still learning.

I am much closer to making a living solely from trading now, but still learning...

One real eye-opener that hit home with me is this: What are your chances of getting it right, flipping a coin, calling heads or tails? Yes, that's right, 50% chance. Those odds are not that bad, but of course, not good enough to bet money on the outcome, and make a living.

But what if you could improve your chances to better than 50%?

Now we're getting somewhere. If you enter a trade with a wide enough SL and equal TP target (i.e. SL and TP size are the same), you already have a 50% of winning that trade. Then if you add some analysis and thought to which direction, and where to enter the trade, you can improve the probability of the trade working out to greater than 50%. I believe this is where every new trader should start. I wish I had started with this years ago. Try it on demo first, of course. And do not go live, until you are comfortable you can win greater than 50% of your trades this way. Of course, you will need a reasonable amount of time, and a significant number of trades to build the confidence in your ability.

Then when you are confident you can come out ahead with the +1 R approach, you could start going for more on some trades, or start trading with 2 positions, and still TP at +1 R on one of them, and maybe go for more on the other position. Obviously this is not a comprehensive list of things needed to become profitable, but I believe it is one of the most important things. Imo, if one cannot win 50% of their trades targeting +1 R, they will have a very difficult time getting to where they can have any confidence to start trading for a living. I also believe, starting off with the +1 R approach will give way more confidence in the long run, and give a better chance at having an aggressive income (trading for a living), rather than settling for a passive income, and needing some other source of income to survive...
  • #22
  • Dec 15, 2015 10:17pm Dec 15, 2015 10:17pm
I will also add to my above post, that if you decrease your profit target to less than your TP target, you increase your chance of hitting your TP target. This might sound crazy to some, who think you always have to target more than what you are risking, but this is not always the case.

For example, if you target 10 pips profit, and risk 20 pips (in the right context and time frame), your chance of going 10 pips in your favor before it goes 20 pips against you is a good probability, about 75% chance. So, again, if you add your analysis and thought about which direction to enter and where to enter, you increase your chances even more.

You would need to win about 67% of your trades to come out ahead. With practice this too can be done. Again, after you have confidence in winning more trades than you lose, you will be better equipped to move to the next stage of letting some trades ride longer...

One last thing I will point out, which again, is all my opinion based on my experience, so take it for whatever it is worth to you - Learn how to trade breakouts. This is the best strategy for +1 R (or smaller) targets, since you have momentum on your side. Either trade the breakout, or enter on a pull-back.

Once you are comfortable with breakouts, add reversals. Reversals are trickier than breakouts, but if you know how to identify them, and learn proper SL placement and profit targets (don't go for too much), they are very high probability trades...

Anyway, wish everyone the best, and remember, it takes time, and no one said it would be easy, and if they did, then they were lying...
  • #23
  • Edited 10:58pm Dec 15, 2015 10:36pm | Edited 10:58pm
The market does not know about our mental state of mind, our mindset, or our psychology - it's goes about to do it's thing day in day out 24/5/365 as usual - it does not care of our existence even.

The state of our psychology will not change the expectancy of the method we apply when we make entries and exits.

Whatever sl and tp we use or not use will in part determine the overall expectancy of our method.

Any MM of whatever shape or form will not change this overall expectancy of our method.

Trading the financial markets is a game of speculation which essentially involves the prediction of future price direction.

How we do this, ie. our method, by FA, TA, QA, guesswork, superstition, crystal ball, whatever the form is our choice to make.

And if you belief it's impossible to predict the market, this speculation game is not for you.
  • #24
  • Dec 15, 2015 11:48pm Dec 15, 2015 11:48pm
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  • #25
  • Dec 16, 2015 12:22am Dec 16, 2015 12:22am
Quoting benaiah
I will also add to my above post, that if you decrease your profit target to less than your TP target, you increase your chance of hitting your TP target. This might sound crazy to some, who think you always have to target more than what you are risking, but this is not always the case. For example, if you target 10 pips profit, and risk 20 pips (in the right context and time frame), your chance of going 10 pips in your favor before it goes 20 pips against you is a good probability, about 75% chance. So, again, if you add your analysis and thought...
Very well i am also try this after many bad loosers....
Trade fearless not careless...
  • #26
  • Edited 6:30am Dec 16, 2015 12:46am | Edited 6:30am
Quoting skyway
The market does not know about our mental state of mind, our mindset, or our psychology - it's goes about to do it's thing day in day out 24/5/365 as usual - it does not care of our existence even. The state of our psychology will not change the expectancy of the method we apply when we make entries and exits. Whatever sl and tp we use or not use will in part determine the overall expectancy of our method. Any MM of whatever shape or form will not change this overall expectancy of our method. Trading the financial markets is a game of speculation...
Prediction must be in the direction of trend.
Trade fearless not careless...
  • #27
  • Edited 3:46am Dec 16, 2015 1:49am | Edited 3:46am
@skyway: For whatever my opinion is worth, I agree 100% with everything you've said.


Quoting skyway
Any MM of whatever shape or form will not change this overall expectancy of our method.
@anybody who's interested: Skyway is correct.

The attached graphic shows the effect of 3 different MMs over 1,000 trades, that use exactly the same entries and exits. Hence the number of pips won/lost is exactly the same for each MM, trade by trade. The method has a small positive expectancy; over time, all three equity curves rise above 1 (the starting capital).

The horizontal axis shows the trade# (1 to 1,000).
The vertical axis shows how many times the starting capital is multiplied, e.g. 2=capital has doubled (100% return); 3=capital has tripled (200% return); etc

The blue equity curve = 1% risk per trade.
The green equity curve = 2% risk per trade.
The red equity curve = 3% risk per trade.

The shape of all 3 equity curves is the same. This is because the expectancy of all systems, determined by the entries and exits, is exactly the same.

The MM (%equity risk per trade) simply magnifies both the returns and the drawdowns, in like proportion.

The problem in this case, is that risking 3% per trade is too much for this system. The equity reaches 0 at trade #397 (the vertical line), causing bankruptcy. After that point, the red curve shows what the return would have been if the margin call had not occurred. This illustrates how, even with a profitable system, risking too much per trade can cause ruin. No matter how positive a system's expectancy is, the greater the risk per trade, the greater the risk of ruin.

Although it has no bearing on expectancy, MM is important. The trader who is too greedy goes bankrupt before he gets a chance to bank his significantly greater profits.

Emotional tolerance to drawdown should also be considered. Even the green curve might be too disheartening for some traders, i.e. they might quit after drawdown exceeds 50% somewhere around trade #270, and thus forfeit the eventual gains prematurely. This further highlights the need for perseverance, and how tough trading can be mentally. The greater the equity swings, the greater the amount of emotional fortitude required.

Obviously with higher positive expectancy (better entries/exits), the dips in the equity curve will be smaller, allowing a higher %risk per trade to be safely employed.

With a negative expectancy method, all 3 equity curves will descend to ruin: the red curve would get there fastest, the blue curve more like death by a thousand cuts, but death nonetheless. No MM can rescue a negative expectancy method.

Which brings us to Elder's "3 Ms":
1. Method -- first and foremost, your entries/exits must generate positive expectancy over time, i.e. a profit factor > 1, after costs.
2. Mindset -- you must have the personal qualities (self-belief, conviction, patience, discipline, etc) necessary to execute your method consistently.
3. Money management -- as just demonstrated, your MM must be conservative enough to allow your account to survive.

Miss the mark on any one of these three requirements, and failure is eventually guaranteed.

All of this is probably common knowledge among experienced traders. I've posted it for the benefit of newbies.

________________________

[EDIT] Footnote: I expect that somebody will point out that, with fixed frac sizing, the account equity will never actually reach 0. Nonetheless, a margin call will occur near to that point, and this slight inaccuracy doesn't invalidate the principles being illustrated.
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  • #28
  • Dec 16, 2015 1:58am Dec 16, 2015 1:58am
Quoting hanover
@skyway: For whatever my opinion is worth, I agree 100% with everything you've said. {quote} @anybody who's interested: Skyway is correct. The attached graphic shows the effect of 3 different MMs over 1,000 trades, that use exactly the same entries and exits. Hence the number of pips won/lost is exactly the same for each MM. The method has a small positive expectancy; over time, all three equity curves rise above 1 (the starting capital). The horizontal axis shows the trade# (1 to 1,000). The vertical axis shows how many times the starting capital...
What was the reward risk used for this test? Obviously that impacts how quickly one would hit a critical level and go bankrupt thanks.
  • #29
  • Dec 16, 2015 2:40am Dec 16, 2015 2:40am
Quoting oztrader79
Obviously that impacts how quickly one would hit a critical level and go bankrupt
I'm afraid yours is a common misconception. The (average) RR is factored into the expectancy; it has no bearing on the risk per trade, or risk of ruin (bankruptcy).

For the record, the equity curves were created using an Excel based simulation, where each 'trade' gained or lost a random number of pips, weighted slightly in favor of a win, to generate positive expectancy.
  • #30
  • Edited 3:05am Dec 16, 2015 2:49am | Edited 3:05am
Quoting hanover
{quote} I'm afraid yours is a common misconception. The (average) RR is factored into the expectancy; it has no bearing on the risk per trade, or risk of ruin (bankruptcy). For the record, the equity curves were created using an Excel based simulation, where each 'trade' gained or lost a random number of pips, weighted slightly in favor of a win, to generate positive expectancy.
I am trying to understand how if you risked 3% per trade with a r:r of 2:1 for example the system went bankrupt. That would mean it got over 30 trades wrong in row to go bankrupt, it seems you would have to have no knowledge to end up with that result.

From personal experience I have found that I have blown my account not due to its failures, but, due to the discretionary nature of most trading, I get involved and fiddle with the system. So a trade which should be 2:1 becomes 1:10 and when I bite the bullet and take the loss, undo months of good work. So I have found usually it's not the system itself that's the problem but the traders failure to control emotions and stick to to system.



edit: I have just read you expanded and edited post, which explains a bit more, and I agree.
  • #31
  • Dec 16, 2015 3:29am Dec 16, 2015 3:29am
Quoting oztrader79
{quote} I am trying to understand......
Expectancy (or, to be strictly correct, profit factor) is the product of win rate, and RR.

Everything else being equal, win rate and RR are inversely proportional to each other. If you shoot for higher RR trades, your win rate will decrease commensurately. For example, an EA that uses randomly generated entries, and consistently takes 1:1 RR trades, should (over time) have a win rate of around 50% (ignoring br0ker costs); while an EA that uses random entries, and consistently takes 2:1 RR trades, should have a win rate of around 33% (ignoring costs). In each case, the profit factor is equal to 1. (Hence, in the equity curves in post #27, each winning 2:1 trade would be followed, on average, by something like 2 losses).

Of course you might have a system that takes 2:1 RR trades, and has a win rate that's significantly > 33%. In which case you would have a higher expectancy (profit factor) than those in my example.

Quote
That would mean it got over 30 trades wrong in row to go bankrupt
The losses don't have to be consecutive, they just need to exceed the number of wins, in a given sequence, by a certain number. For example, you could have a sequence of 100 trades which included 20 wins and 80 losses, in any order within that sequence. At 3% risk (compounded) and 2:1 RR, each win = 6% and each loss = 3%. Hence the effect on your equity would be 1.06^20/1.03^80 = ~ 0.301, i.e. approx 70% drawdown.

Quote
From personal experience I have found that I have blown my account not due to its failures, but, due to the discretionary nature of most trading, I get involved and fiddle with the system. So a trade which should be 2:1 becomes 1:10 and when I bite the bullet and take the loss, undo months of good work. So I have found usually it's not the system itself that's the problem but the traders failure to control emotions and stick to to system.
I'm afraid that this type of occurrence happens to just about all traders, at some point.
  • #32
  • Dec 16, 2015 11:13am Dec 16, 2015 11:13am
Tom29, where are you ?
Please, continues the story. YOU are the master of this thread, no others.
Thank you.
  • #33
  • Dec 16, 2015 11:17am Dec 16, 2015 11:17am
"And if you belief it's impossible to predict the market, this speculation game is not for you."


Study after study has shown such prediction is not possible. In fact, that's why most traders lose. That's why my posts are rather negative - I advise people to not trade because I know what's going to happen. First, they slap a bunch of indicators on their charts which all fail. Then they'll sign-up for some "education"class and give some "market guru" a lot of money. That doesn't work either. Then they try "price action" or "order flow". That costs them dearly as well.

It is not possible to predict prices - if it could be done, the market wouldn't even exist! Anyone who has taken even a freshman class in economics knows that.
If everyone knew the price was going up, who would be selling? Markets exist only because there is uncertainty about future price direction. BTW, how many traders here at Forex Factory have ever actually read an economics textbook? How many of you know off the top of your head (without googling the answer)
Say's Law? How about Ricardo,Malthus,or Adam Smith? How about purchasing power parity? If you lack even a basic understanding of economics, why in hell's name are you trading the financial markets? No wonder you lose money hand over fist! Honestly, all you're doing is gambling. You might as well go to Las Vegas and play the slot machines. The outcome will be the same , but in Vegas at least you get drinks, good buffets, and some shows. You can no more trade the markets without understanding economics than you could perform brain surgery without going to medical school. It's that simple, people.

I never attempt to predict price because I know it's an exercise in futility.
  • #34
  • Dec 16, 2015 11:33am Dec 16, 2015 11:33am
Tom29, That is the Niga spirit. Never give up on a good course. I de feel you, you posted exactly what i when through in the course of my 8years trading struggle since I lost millions of Naira in stocks market meltdown. But in my own case since after discovering all this truth you mentioned am only trading Demo to highly perfect my system, while saving up to fund my live account.
For someone to keep the dream of being a good trader alive passion must be on the driver's seat.
  • #35
  • Dec 16, 2015 3:17pm Dec 16, 2015 3:17pm
Quoting hollowhead
interesting read - some valid points (some gross generalisations based on your failures without the proven success that validates them). But confused/disappointed that you spent time in forums messaging people, begging to be taught, borrowing money from them to feed your trading habit and yet you demand that no-one should contact you because you won't respond. Comes across like the first guy you mentioned and not exactly the attitude to others that the 'Spirit' would want.

hollowhead, I totally agree with you. The original poster of this thread (Tom29) is a hypocrite for the exact reasons you stated. He admitted that he has constantly begged others in one way or another to help him - even to the degree to ask others to pay financially for his trading addiction - yet he DEMANDS that everyone not bother him? And he now has the nerve to have a signature of: "DO NOT PM ME FOR ANYTHING BECAUSE IF YOU DO THEN I WON'T RESPOND"?

What a hypocrite.
"Dream big and dare to fail." - Norman Vaughan
  • #36
  • Dec 16, 2015 4:30pm Dec 16, 2015 4:30pm
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  • #37
  • Dec 16, 2015 5:39pm Dec 16, 2015 5:39pm
Quoting gravitist
If everyone knew the price was going up, who would be selling?
Every single person who realized they fucked-up and were currently stuck holding short positions?
Congratulations ScalaFX for coming out of the closet!
  • #38
  • Dec 17, 2015 6:20am Dec 17, 2015 6:20am
Quoting Ace_1
{quote} hollowhead, I totally agree with you. The original poster of this thread (Tom29) is a hypocrite for the exact reasons you stated. He admitted that he has constantly begged others in one way or another to help him - even to the degree to ask others to pay financially for his trading addiction - yet he DEMANDS that everyone not bother him? And he now has the nerve to have a signature of: "DO NOT PM ME FOR ANYTHING BECAUSE IF YOU DO THEN I WON'T RESPOND"? What a hypocrite.

I didnt read through all his text to see that.
hollowhead,I quite agree with you, it is really selfish and hypocrite for someone who enjoyed the help of others through the ladder, to clearly state that he cannot help. What is the joy of learning if not to enlighten others?.
  • #39
  • Dec 17, 2015 7:58am Dec 17, 2015 7:58am
Quoting gravitist
If everyone knew the price was going up, who would be selling?
Simply look at the positions of retail traders.

Even when all objective indicators of direction show price going up they are net short. Conversely, when price goes down they are net long.

I still can't figure this out.
  • #40
  • Dec 18, 2015 9:13pm Dec 18, 2015 9:13pm
Nice story, this is LIFE.
14 years in forex market i don't believe you.
maybe in the end you have different mindset that effect you trading career...

And one more thing begging a good trader for 100$ is not a good idea...
if i can't even make 100$ by myself that means i don't deserve other person's hard work
I don't think a random rich guy will even give 100$ to a random person living in the streets...


Just change you mindset everything will be better.
Sorry i didn't read them all.
But thank you for sharing your experience with us.
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