Forex is too risky, so why you still doing trading.

[Peterw]

Originally Posted by thehawkman

And by the way, Van K Tharp doesn't trade. Like most guys who can't do, he teaches.

Ahh but he does sell expensive NLP courses - which I have bought! Very very good it is as well. If he hadn't made it into the original Market Wizards book I wouldn't have given it a look but if he's good enough for Schwager he's good enough for me. "Trade your way to financial freedom" is a must read for all newbies IMO. Just my opinion though

[thehawkman]

I see nobody actually bothered to discuss that picture.

[thehawkman]

Originally Posted by Peterw

So are you saying I should have used stops? And that not using stops = overleveredging which is unprofessional?

What he's saying is:


"Most professional traders and money managers trade one standard lot for every $50,000 in their account.

If they traded a mini account, this means they trade one mini lot for every $5,000 in their account.

Let that sink into your head for a couple seconds.

If pros trade like this, why do less experienced traders think they can succeed by trading 100K standard lots with a $2,000 account or 10K mini lots with $250?

No matter what the Forex brokers tell you, don't ever open a "standard account" with just $2,000 or a "mini account" with $250. Heck, some even allow you to open accounts with just $25.

The number one reason new traders fail is not because they suck, but because they are undercapitalized from the start and don't understand how leverage really works.

Don't set yourself up to fail.

[lycan]

Originally Posted by Peterw

So you don't trade, you're telling people 'how it is' and you have absolutely no clue what you're talking about.

I don't trade but I do know what I'm talking about.

maybe you should stick to giving out advice on how to use credit cards instead of a rainy day fund when times get tough.

It is the rational course of action. I'm not saying "Blow all your income on crap and then when you lose your job just use credit cards", I'm saying always treat 100% of your money as investment funds, investing primarily in your main business (which if you have a job, means your job... which includes taking good care of your employee, which is you). Hoarding cash is wasteful.

[lycan]

Originally Posted by thehawkman

I see nobody actually bothered to discuss that picture.

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[lycan]

Originally Posted by thehawkman

This is the crux of the problem. Do we die a death by a thousand cuts and slowly grind away our profits due to volatility (one step forward, one step back), like in this screenshot (and let's face it, this happens all the time, it's what led me to try carry trading in the first place) or do we run the risk of getting into a huge mess with countless positions and interminable waiting? I have to admit I haven't really figured the answer to this. Perhaps someone else has an idea.

Well, look...

If you trade properly, you'll be closing profitable positions nearly every day. However, you'll also be holding losing positions nearly all the time. This is why I favor going long on high interest and short on low interest, in general (this is not an absolute rule!), to move losing positions slowly into profit.

It could take over a year to average your trades into profit. Or not. It depends on your timing. You need patience. You can't be a fidgety trader. Just do your trades and go about your life, the trades take care of themselves.

[SnerpGoodWord]

Originally Posted by lycan

Well, look...

If you trade properly, you'll be closing profitable positions nearly every day. However, you'll also be holding losing positions nearly all the time. This is why I favor going long on high interest and short on low interest, in general (this is not an absolute rule!), to move losing positions slowly into profit.

It could take over a year to average your trades into profit. Or not. It depends on your timing. You need patience. You can't be a fidgety trader. Just do your trades and go about your life, the trades take care of themselves.

I'm guessing you've never actually tried this, have you? The theory of positive carry "makes sense" economically, but it doesn't actually work in many environments. It assumes that investors will prefer the high default-adjusted yield of the bonds of crisis countries over the perceived safe haven properties of bonds separate from the crisis. That may be economically rational, but it's not what happens in many cases - witness Japan's bonds in the "lost decade" and Swiss bonds during the current Euro-crisis.

The reason for this counter-economic behavior is that most investors (basically, pension and bond fund guys) have a skewed set of incentives. The incentive to grab more yield is much smaller than the disincentive in the case of default. If a pension fund takes on default risk, they get an ulcer and an "attaboy" from the boss for making a few extra percent when it works. When the bonds default they get fired. As a result, apparently attractive carry situations can sit there with no takers for years or even decades.

[lycan]

Originally Posted by SnerpGoodWord

I'm guessing you've never actually tried this, have you? The theory of positive carry "makes sense" economically, but it doesn't actually work in many environments. It assumes that investors will prefer the high default-adjusted yield of the bonds of crisis countries over the perceived safe haven properties of bonds separate from the crisis. That may be economically rational, but it's not what happens in many cases - witness Japan's bonds in the "lost decade" and Swiss bonds during the current Euro-crisis.

The reason for this counter-economic behavior is that most investors (basically, pension and bond fund guys) have a skewed set of incentives. The incentive to grab more yield is much smaller than the disincentive in the case of default. If a pension fund takes on default risk, they get an ulcer and an "attaboy" from the boss for making a few extra percent when it works. When the bonds default they get fired. As a result, apparently attractive carry situations can sit there with no takers for years or even decades.

Not sure what your point is. In what sense is this relevant?

[SnerpGoodWord]

Originally Posted by lycan

Not sure what your point is. In what sense is this relevant?

Well, you're talking about buying high rates and selling low rates. The reason a carry trade like that would work is that investors would want to buy bonds in the high-yield country to increase their returns. In order to do that, they would need to buy that country's currency, and thus the price of the currency you're long in would go up.

If this were true, the Euro and Korean Won should be kicking ass over the last decade, and the Dollar and Yen should be losing. My point is simply it doesn't work that way - 3/4s of those predicted events didn't happen.

[thehawkman]

Originally Posted by lycan

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Sorry, deleted it by mistake. Here it is this time.

the problem with stops

I hope it's clear what I am talking about in that picture.
Going long at the green thumbs up, you would have been stopped at the red x only to see price return to where it was (the purple line). This would have merely made your broker richer, not to mention unnecessarily giving away 40 to 50 pips of your profits, and as you can see price returned precisely to where it was before.
I'll concede that not having a stop could mean that price could keep going down for days and result into a margin call. But if that is the case you are overleveraged, or rather, your lot size is too big because a leverage of 1:500 on a lot of 100 dollars isn't going to get you into a margin call on a large enough account, but on a lot of 200,000, that's a whole different story.
That is a demo account, looking at it, you can also see how averaging down combined with using known correlations would work for hedging. Alternatively one could use a second account, as a workaround for the NFA hedging ban (for all of you "lucky" Americans out there).

[lycan]

Originally Posted by SnerpGoodWord

Well, you're talking about buying high rates and selling low rates.

I'm talking about taking rates into consideration because the rates, in essence, change the real price of a currency over time. If you trade for example AUD/JPY, the longer you hold the position, the higher the real price of the Australian dollars you bought/sold will be in yens relative to the nominal quote price. This is to be taken into consideration in the process of averaging down longs and averaging up shorts. The point is not to hunt for yield. The nominal yield is an illusion. The point is to not neglect the impact of the difference in rates.

[lycan]

I've wasted too much time talking about a subject that I am no longer interested in, just out impulse. For the record, I don't plan to make any more posts here.

[Peterw]

Originally Posted by lycan

I'm talking about taking rates into consideration because the rates, in essence, change the real price of a currency over time. If you trade for example AUD/JPY, the longer you hold the position, the higher the real price of the Australian dollars you bought/sold will be in yens relative to the nominal quote price. This is to be taken into consideration in the process of averaging down longs and averaging up shorts. The point is not to hunt for yield. The nominal yield is an illusion. The point is to not neglect the impact of the difference in rates.

So if you buy this pair you think you'll make money over the long term?



Do you actually think the interest rate differential will offset the loss from the trade going against you? And with no stop loss do you plan to keep whipping out the credit card to feed your margin requirements?

And you have been on here telling us all 'how it is' and criticising people who use stops as 'not knowing what they're doing'?.....

Originally Posted by lycan

I've wasted too much time talking about a subject that I am no longer interested in, just out impulse. For the record, I don't plan to make any more posts here.

This is the first intelligent thing you've posted in this thread. Please stick to it.

[Peterw]

Originally Posted by thehawkman

Sorry, deleted it by mistake. Here it is this time.

the problem with stops

I hope it's clear what I am talking about in that picture.
Going long at the green thumbs up, you would have been stopped at the red x only to see price return to where it was (the purple line). This would have merely made your broker richer, not to mention unnecessarily giving away 40 to 50 pips of your profits, and as you can see price returned precisely to where it was before.
I'll concede that not having a stop could mean that price could keep going down for days and result into a margin call. But if that is the case you are overleveraged, or rather, your lot size is too big because a leverage of 1:500 on a lot of 100 dollars isn't going to get you into a margin call on a large enough account, but on a lot of 200,000, that's a whole different story.
That is a demo account, looking at it, you can also see how averaging down combined with using known correlations would work for hedging. Alternatively one could use a second account, as a workaround for the NFA hedging ban (for all of you "lucky" Americans out there).

What system are you using? To me idea behind using stops is to limit the downside of losing trades. But another equally important idea is to have more winners and larger winners with a risk:reward ratio of at least 1:2

I agree that stops will kill you slowly if you have a horrendous trading system. But it's not the stops that will get you it's the system.

[thehawkman]

What system are you using? To me idea behind using stops is to limit the downside of losing trades. But another equally important idea is to have more winners and larger winners with a risk:reward ratio of at least 1:2

I agree that stops will kill you slowly if you have a horrendous trading system. But it's not the stops that will get you it's the system.

Define "system". I hope you don't mean using indicators?

[Books]

In my opinion the fact that small traders can make money right now is the result of the huge imbalances of the economic system. In an economic system using bond based currency origination inflation is something that is forced into the system out of necessity.

So if you have 16 world currencies that have a value that is declining on a daily basis the only increases that can occur are changes in the spending patterns of the country of origin or the other countries that the currency trades against.

There are three reasons why the currency market is far more risky today than at any other time in history.

1. The amount of total participants in the market
2. The amount of leverage being used
3. Quantitative easing (total debt levels)

To actively trade currencies at this point in time isn't smart. It's not because you can't make a profit doing it that makes it not smart. You're dealing with either or situations. The risk of bankruptcy and system failure is increasing everyday. So yeah the carry trade is great until a country fails.

If you aren't a huge bank or someone else with a real purpose to be in the market then you shouldn't be in it. The entire thing is a giant bubble. It's far worse than trading oil, for example. Oil gets used up. Air is always being taken out of that type of bubble. It can still crash but not in the same way that currencies are going to crash.

There could very well be a situation where all currencies go down in value at the same time. It's interesting how the forex markets don't have that as a possibility. That's exactly what is happening at this present time. The entire purchasing power of the entire system is becoming less valuable.

The money will go somewhere.

[NoJobRob]

Originally Posted by thehawkman

Define "system". I hope you don't mean using indicators?

Indicators are one part of a system, but not the only part, at least in my system. There's also price overlays like fibonacci retracements, support and resistance (supply and demand areas), trend lines, price action, fundamentals, etc etc etc. They all contribute to many systems. I do use indicators (a few), but I don't let them tell me what to do. At the end of the day I am a discretionary trader. There might very well be a bullish MACD cross, but if price forms a reversal pattern after a move up, and there seems to be a lack of commitment to take price higher, I won't go long. This is just one example... Indicators are useful, but you can't let them do your thinking for you. You have to think for yourself, obviously.

[Peterw]

Originally Posted by thehawkman

Define "system". I hope you don't mean using indicators?

By system I mean method of chosing entries and exits. It can be fundamental, technical, both, use indicators, pure price action whatever.

What's wrong with indicators? I trade price action myself and am incorporating fundamental analysis into that as well. Like Rob I'm discretionary and use fibs, trend lines, MAs (indicators) and an occilator (MACD) for divergences. Many people use pure indicator based systems very successfully.

If what you do makes money you've cracked it. If it doesn't don't blame it on the stops....unless you put them where they're sitting ducks

[lycan]

I have to reply to this.

Originally Posted by Peterw

So if you buy this pair you think you'll make money over the long term?

As a matter of fact, if you bought this pair, you have made made money over the long term. If you traded this pair intelligently, you have made a substantial amount of money.



How does the return of the AUD/JPY pair compare to index funds over the last 10 years? I'm too lazy to check, since I'm not a trader anyway. But since you are, maybe you should take the time to do so.

Do you actually think the interest rate differential will offset the loss from the trade going against you?

As a matter of fact, yes, it will, over a long enough time frame. Even if it does not completely offset the loss, that is not important because the idea is to trade pairs, not simply do carry trades with them.

[Peterw]

So now the idea is to trade the pairs and not the carry?

In the case of aud/jpy would you recommend going long or short right now? And how about stop losses? Still for people who don't know what they're doing?

How would you handle that massive dip and current down trend?

[lycan]

Originally Posted by Peterw

So now the idea is to trade the pairs and not the carry?

Did you read a single word I wrote?!? The interest rate differential is important because it offsets the nominal price depreciation. It is not important in itself. Trading in favor of the carry instead of against it is simply a risk management tactic. One which needs to take other factors into consideration but which is a pretty effective tactic in general.

In the case of aud/jpy would you recommend going long or short right now?

Unless I see some truly amazing, cheap androids being mass manufactured in Japan, I would not dare take a short position in this pair, ever.

And how about stop losses?

I would not use stop losses.

Still for people who don't know what they're doing?

Yes.

How would you handle that massive dip and current down trend?

I would average down the entry price for going long and average up the exit price for retreating from the long position.

What this means in practice depends on how much capital you have, the minimum lot size you can trade and the leverage you have available.

[SnerpGoodWord]

So basically he'd go long a pair that's falling, place no stop, and average down. In other words, he'd take heavy losses on whatever he was willing to bet.

Proves the point we've been making all along.

Gotta love this thread

[Peterw]

Originally Posted by SnerpGoodWord

So basically he'd go long a pair that's falling, place no stop, and average down. In other words, he'd take heavy losses on whatever he was willing to bet.

Proves the point we've been making all along.

Gotta love this thread

That sounds like smart trading from someone who knows what they're doing

If only I could be bothered to do a number crunching exercise to show just how utterly ridiculous this trading theory is....

[SnerpGoodWord]

Originally Posted by Peterw

That sounds like smart trading from someone who knows what they're doing

If only I could be bothered to do a number crunching exercise to show just how utterly ridiculous this trading theory is....

It's basically a reverse lottery - it appears to generate profits most of the time, and then blows up spectacularly the one time you buy at a maxima and can't get out. Just the risk:reward ratio should tell you not to trade it before even worrying about what the expectation is.

Interestingly, you'll sometimes see major institutions engaging in this sort of behavior. Their bonus plans incentivize it. But they frequently take big losses doing it - lots of macro desks have taken a beating on the anything/JPY carry trade over the years.

[lycan]

I will not be dragged back into this nonsensical conservation.

I will not be dragged back into this nonsensical conservation.

I will not be dragged back into this nonsensical conversation.

Oh look, maybe affirmations really work!

[Spinoza]

I was reading this thread and was kinda thinking about throwing out my two cents about general trading advice, but I'm not a financial trader so was wondering if I should just keep my mouth shut.

[Peterw]

Originally Posted by Spinoza

I was reading this thread and was kinda thinking about throwing out my two cents about general trading advice, but I'm not a financial trader so was wondering if I should just keep my mouth shut.

Go for it, share your experiences. The only reason this thread descended into such a stupour is because someone with 0 experience started trying to give out very very bad advice whcih needed to be corrected for any newbies reading.

[lycan]

Originally Posted by Peterw

Go for it, share your experiences. The only reason this thread descended into such a stupour is because someone with 0 experience started trying to give out very very bad advice whcih needed to be corrected for any newbies reading.

I do not have "zero experience". 99% of all the money I ever earned was earned in finances and it was a considerable amount. This money was lost but for personal reasons, not the failure to use stop losses. My advice to newbies is:

• Your positions should not be worth more than 2x your balance
• You shouldn't enter or exit these positions in a single trade
• You shouldn't trade against the carry
• You shouldn't sell at a loss, with or without a stop loss order

If a newbie follows these rules he will be better off than if he tries your approach. Those 4 reasons are the 4 biggest reasons traders fail. As you improve your understanding you can start to bend these rules because you can actually understand when it is appropriate to do so. There are times when you should reverse your trade (sell at a loss). But to make that decision based on a stop loss is retarded.

[lycan]

Originally Posted by Books

In my opinion the fact that small traders can make money right now is the result of the huge imbalances of the economic system. In an economic system using bond based currency origination inflation is something that is forced into the system out of necessity.

So if you have 16 world currencies that have a value that is declining on a daily basis the only increases that can occur are changes in the spending patterns of the country of origin or the other countries that the currency trades against.

Prices are always in relation to something. All prices are stated in pairs. The only reason prices change is because of differences in the perceived relative value of the items in the pair. The currencies are the product of the central banks, which are the meta-corporations of the banking networks of each "country". Changes in the currency pairs are produced by differences in the circumnstances faced and the management strategy used by these corporations. It is not all that different from commodities or equities. In a sense, currencies are artificial commodities.

There are three reasons why the currency market is far more risky today than at any other time in history.

Individual currencies aside, the currency market today is far safer than at any other time in history. The only thing that could collapse it would be World War 3 (with nukes).

If you aren't a huge bank or someone else with a real purpose to be in the market then you shouldn't be in it. The entire thing is a giant bubble.

It is not a bubble at all.

There could very well be a situation where all currencies go down in value at the same time.

Yes, that is known as a commodities rally.

It's interesting how the forex markets don't have that as a possibility.

If the price of the USD and the price of the JPY both fall in relation to cotton, it has no impact on the USD/JPY. It only has an impact on the cotton/USD and cotton/JPY.

That's exactly what is happening at this present time. The entire purchasing power of the entire system is becoming less valuable.

The money will go somewhere.

Hasn't this been happening for about a hundred years now?

[Peterw]

Originally Posted by lycan

I do not have "zero experience". 99% of all the money I ever earned was earned in finances and it was a considerable amount. This money was lost but for personal reasons, not the failure to use stop losses. My advice to newbies is:

• Your positions should not be worth more than 2x your balance
• You shouldn't enter or exit these positions in a single trade
• You shouldn't trade against the carry
• You shouldn't sell at a loss, with or without a stop loss order

If a newbie follows these rules he will be better off than if he tries your approach. Those 4 reasons are the 4 biggest reasons traders fail. As you improve your understanding you can start to bend these rules because you can actually understand when it is appropriate to do so. There are times when you should reverse your trade (sell at a loss). But to make that decision based on a stop loss is retarded.

You just cannot stay away can you.

Newbies just need to read this:

99% of all the money I ever earned was earned in finances and it was a considerable amount. This money was lost but for personal reasons

[*]You shouldn't trade against the carry

So short AUD/JPY is a bad trade at the moment is it? (*hint - charts on previous page)

Those 4 reasons are the 4 biggest reasons traders fail

The main reason traders fail is not knowing what they're doing, having too high expectations and not using proper position sizing, money management and stop losses.

Newbies please do not take any advice from this failed trader. He will keep coming back and arguing his theories (which is all they are) despite promising to stop posting here so just keep in mind that he does not actually practice any of what he is talking about.

I really have no interest in indulging you any more, I'm only writing this so that anyone reading completely ignores any of your 'financial advice'.

Just think about it - "don't use stop losses", "don't have an emergency fund just go into debt instead", "trade the carry even when the value of your position will wipe out your account - oh actually no it's trading the pairs that count"...

Seriously?

Are you just trolling for the sake of arguing?