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

[lycan]

Originally Posted by Peterw

You just cannot stay away can you.

I can't.

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

Yes, it is.

Newbies please do not take any advice from this failed trader.

I'm not a failed trader.

"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"...

Huh?

Are you just trolling for the sake of arguing?

Are you? Let me explain something to you. Your success as a trader depends on you getting better entry/exit prices than your competition. Why would you help your competition, ever? If you tell your competitors how to trade profitably, your own profits are eliminated because the inneficiency which you were correcting vanishes. The only two reasons to talk about it honestly are:

1. Vanity is more important to you than profit
2. You no longer trade so it doesn't matter

If an active trader shares his wisdom with you... he is either a fool or a liar. Either way, it's not a good idea to listen.

[Spinoza]

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.

All right let me give you my experience with trading. Let me start out by saying I wasn't trading on an exchange I was trading collectible cards. Over 2 years I traded a 50 dollar purchase of cards into a collection that was worth approximately 5000 dollars. After the first month I can honestly say that I never...NEVER made an unprofitable trade.

So what was my secret...know everything. Really only through knowing every card, the different types of trading, the different types of traders, knowing what players thought was cool, understanding the dynamics of the game, only through having an extremely broad and in-depth of knowledge of everything related to card trading was I able to better appreciate the value of a card and recognize opportunities when they presented themselves.

So my take away for traders is that you should have your areas of focus but you should never neglect having a broad and in-depth understanding of every area of the market. Foreign markets, commodities, futures, global politics...etc. You should study up on everything and only with that knowledge can you better realize the value of a trade in whatever area you choose to deal with.

I’m sure the natural reaction is that financial markets are many times more complicated and there are orders of magnitude more information in trading markets than there is in trading cards. I totally agree with this but it still something I think a trader should strive for.

[lycan]

That is very reasonable advice Spinoza.

[Peterw]

Originally Posted by Spinoza

So my take away for traders is that you should have your areas of focus but you should never neglect having a broad and in-depth understanding of every area of the market. Foreign markets, commodities, futures, global politics...etc. You should study up on everything and only with that knowledge can you better realize the value of a trade in whatever area you choose to deal with.

I’m sure the natural reaction is that financial markets are many times more complicated and there are orders of magnitude more information in trading markets than there is in trading cards. I totally agree with this but it still something I think a trader should strive for.

That's absolutely right. I'm actually finding that the more I simplify and less I try and micro analyse the better my results are. KISS is a great rule of thumb. But the more understanding and experience is also helping a lot.

It's like anything - I think 10,000 hours is supposed to be the time needed to become really good at something? I'm getting there day by day...

[Peterw]

Originally Posted by lycan

I can't.




Yes, it is.




I'm not a failed trader.




Huh?




Are you? Let me explain something to you. Your success as a trader depends on you getting better entry/exit prices than your competition. Why would you help your competition, ever? If you tell your competitors how to trade profitably, your own profits are eliminated because the inneficiency which you were correcting vanishes. The only two reasons to talk about it honestly are:

1. Vanity is more important to you than profit
2. You no longer trade so it doesn't matter

If an active trader shares his wisdom with you... he is either a fool or a liar. Either way, it's not a good idea to listen.

Whatever you say

Go buy some AUD/JPY - good luck with that

[lycan]

Originally Posted by Peterw

Whatever you say

Go buy some AUD/JPY - good luck with that

This forum is being deactivated so there isn't going to be a continuation of this conversation. Do you have something against the AUD/JPY? The australian dollar will outperform the japanese yen over the long term; it has outperformed US stocks over the last 10 years and it has outperformed the yen. It will continue to outperform the yen. The only thing that could cause a shift in this is a very significant depreciation of the yen. Short term trends are just that, short term trends. Expand your chart. Look at it.

[Peterw]

Originally Posted by lycan

This forum is being deactivated so there isn't going to be a continuation of this conversation. Do you have something against the AUD/JPY? The australian dollar will outperform the japanese yen over the long term; it has outperformed US stocks over the last 10 years and it has outperformed the yen. It will continue to outperform the yen. The only thing that could cause a shift in this is a very significant depreciation of the yen. Short term trends are just that, short term trends. Expand your chart. Look at it.

I rest my case. Good place to end this conversation.

[lycan]

Originally Posted by Peterw

I rest my case. Good place to end this conversation.

The australian dollar starts at 65 yen and ends at 75 yen. 65 yen from 10 years ago, adjusted for the interest, is about 100 yen. In the same timeframe the USD/JPY went from around 130 yen to around 80 yen. A newbie who followed the rule "your positions should not be worth more than 2x your balance" and the rule "you should not sell at a loss" would have survived the crash just fine. A good trader would have made a fortune. Volatility is why traders exist.

[Peterw]

Originally Posted by lycan

The australian dollar starts at 65 yen and ends at 75 yen. 65 yen from 10 years ago, adjusted for the interest, is about 100 yen. In the same timeframe the USD/JPY went from around 130 yen to around 80 yen. A newbie who followed the rule "your positions should not be worth more than 2x your balance" and the rule "you should not sell at a loss" would have survived the crash just fine. A good trader would have made a fortune. Volatility is why traders exist.

OK - I'm interested in the mechanics of your rules and how they would apply to this chart. Can you explain:

"you should not sell at a loss"

1. How does this rule take effect? Ie - what is the trigger for not selling at a loss, say for example if you've bought, it's gone up but now it's coming back down.

2. What if you buy in early 2008 on the way down at what looks to you like a 'dip' which actually turns out to be part of a bigger crash. You have position sized well and are using sensible leverage but by the time it stops falling your account will be totally wiped out. You don't know it's going to fall that far because you expect it to be a dip that results in a new high. What's your gameplan for this scenario?

[lycan]

Originally Posted by Peterw

How does this rule take effect? Ie - what is the trigger for not selling at a loss, say for example if you've bought, it's gone up but now it's coming back down.

If you bought and it has gone up, you sell. Now it's coming back down and you buy again.

Let me try to make this simple to understand.

Imagine you have a stack of 1000 USD. You use 500 USD to buy the equivalent in yen and keep the other 500 USD in dollars.

When the value of the yen goes down so your stack of USD is worth x% more than your stack of yen, you exchange your USD for more yen. When the value of the yen goes back up so your new stack of yen is now worth x% more than your stack of USD you exchange your yen for more USD.

This is the essence of what all traders do. They exchange a gold coin for two bags of spices and then exchange the bag of spices for two gold coins. Except a forex trader, in the context we are talking about, doesn't arbitrage between Portugal and India, they arbitrage between one day and the other. Time is the ocean he has to navigate to find his markets, his buyers and sellers.

[Peterw]

Originally Posted by lycan

If you bought and it has gone up, you sell. Now it's coming back down and you buy again.

Let me try to make this simple to understand.

Imagine you have a stack of 1000 USD. You use 500 USD to buy the equivalent in yen and keep the other 500 USD in dollars.

When the value of the yen goes down so your stack of USD is worth x% more than your stack of yen, you exchange your USD for more yen. When the value of the yen goes back up so your new stack of yen is now worth x% more than your stack of USD you exchange your yen for more USD.

This is the essence of what all traders do. They exchange a gold coin for two bags of spices and then exchange the bag of spices for two gold coins. Except a forex trader, in the context we are talking about, doesn't arbitrage between Portugal and India, they arbitrage between one day and the other. Time is the ocean he has to navigate to find his markets, his buyers and sellers.

Doesn't answer either of my questions.

1. When do you decide when to sell - what makes you decide it's "gone up enough"?

How does this rule take effect? Ie - what is the trigger for not selling at a loss, say for example if you've bought, it's gone up but now it's coming back down.

Do you have a cut off point that says sopmething like "close the trade before it goes into a loss" - say at bre3akeven or x amount of profit?

2. What do you do when it goes against you and continues going against you?

I'm just trying to understand your rules.

[lycan]

Originally Posted by Peterw

Doesn't answer either of my questions.

Actually, it answers it perfectly well.

1. When do you decide when to sell - what makes you decide it's "gone up enough"?

The size of the lots I can trade in relation to my balance and the volatility I can expect from the pair. If I believe there is a long term uptrend I might take the chance with a trailing stop once it has reached the take profit target and see how far I can run with it. If I am uncertain I just set the take profit target at whatever distance I expect can be reached within a reasonable timeframe, on average, for the positions.

2. What do you do when it goes against you and contionues going against you?

You think. If it is going against you for a legitimate long term reason, you reverse your trade. If it is going against you because of short term volatility, like a crisis, you average down.

[Peterw]

Originally Posted by lycan

Actually, it answers it perfectly well.




The size of the lots I can trade in relation to my balance and the volatility I can expect from the pair. If I believe there is a long term uptrend I might take the chance with a trailing stop once it has reached the take profit target and see how far I can run with it. If I am uncertain I just set the take profit target at whatever distance I expect can be reached within a reasonable timeframe, on average, for the positions.




You think. If it is going against you for a legitimate long term reason, you reverse your trade. If it is going against you because of short term volatility, like a crisis, you average down.

OK so you set a profit target and trail a stop loss to catch as much as you can if it keeps going.

Then if it goes against you you sell at a loss and go short - or ride it out if your margin allows.

I think we're getting somewhere now. I agree with the profit taking approach. For trades going aginst me I wouldn't kill it and go short just because it's going against me. I'd need a legitimate signal to short. I also wouldn't leave my capital tied up in a losing trade. If it get's past a 2% loss of equity I kill it and move on to the next one.

[lycan]

Originally Posted by Peterw

OK so you set a profit target and trail a stop loss to catch as much as you can if it keeps going.

Only in special occasions. The not sell at a loss is relative to the entry price. A stop loss that results in profit is fine.

Then if it goes against you you sell at a loss and go short - or ride it out if your margin allows.

The fact it is going against me is irrelevant. What is relevant is if there is a legitimate reason for it go against me. That is, is there a reason for me to expect that if I buy today, I will never be able to sell at a profit?

I think we're getting somewhere now. I agree with the profit taking approach. For trades going aginst me I wouldn't kill it and go short just because it's going against me. I'd need a legitimate signal to short. I also wouldn't leave my capital tied up in a losing trade. If it get's past a 2% loss of equity I kill it and move on to the next one.

I expect a 2% loss of equity. That being said, measuring equity when you are trading currencies is not such a black and white thing. There is no absolute measure of value. All prices, including your equity, is measured in pairs. Like USD/Groceries, USD/Rent, USD/Liter of Coke. You can have a 2% loss of equity just by holding a USD balance at the same nominal value.

[Peterw]

Originally Posted by lycan

Only in special occasions. The not sell at a loss is relative to the entry price. A stop loss that results in profit is fine.




The fact it is going against me is irrelevant. What is relevant is if there is a legitimate reason for it go against me. That is, is there a reason for me to expect that if I buy today, I will never be able to sell at a profit?




I expect a 2% loss of equity. That being said, measuring equity when you are trading currencies is not such a black and white thing. There is no absolute measure of value. All prices, including your equity, is measured in pairs. You can have a 2% loss of equity just by holding a USD balance with no trades.

How do you keep to a 2% loss of equity and make sure it doesn't go over that?

That being said, measuring equity when you are trading currencies is not such a black and white thing. There is no absolute measure of value. All prices, including your equity, is measured in pairs. You can have a 2% loss of equity just by holding a USD balance with no trades

It's measured in 'pips'. You position size accordingly and the value of your trade/account moves in accordance with how many pips you are up or down on that particular trade.

So lets say you trade EUR/USD at $10/pip if it moves 100 pips against you then you're down $1000. If you trade $0.10/pip then a 100 pip move is worth $10. It is very black and white.

The way I trade FX you don't hold one currency (like USD) you hold a pair long or short. You can calculate the profit and loss down to the $0.10, even $0.01 with some brokers.

By averaging down do you mean keep buying on the way down waiting for it to turn around? I know some people who've been doing that with gold. They traded without stops and kept picking the bottom. It's not pretty for them, it's also how I leant the lesson to always follow the goldon rule of trading:

"Cut your losses short and let your winners run."

I think the issue with this conversation is that we have different timeframes. You are obviously very long term, I don't have the capital to have wide enough stops to ride out the swings on longer term trends. If I hold a trade for longer than a week that's long term for me. Most are opened and closed same day - even though I don't trade lower than the 4h timeframe.

[lycan]

Originally Posted by Peterw

How do you keep to a 2% l;oss of equity and make sure it doesn't go over that?

I don't. If you were honest with yourself you would realize neither do you. It is impossible to do this.

[Peterw]

Originally Posted by lycan

I don't. If you were honest with yourself you would realize neither do you. It is impossible to do this.

Whatever you say mate

Say hello to my little friend:

FxORG Volume Calculator

And this one:

Trader's Calculator | LiteForex

And plenty more like them.

But thanks for telling me I need to be more honest with myself. I'll see what I can do about that...

[thehawkman]

Originally Posted by Peterw

How do you keep to a 2% loss of equity and make sure it doesn't go over that?



It's measured in 'pips'. You position size accordingly and the value of your trade/account moves in accordance with how many pips you are up or down on that particular trade.

So lets say you trade EUR/USD at $10/pip if it moves 100 pips against you then you're down $1000. If you trade $0.10/pip then a 100 pip move is worth $10. It is very black and white.

The way I trade FX you don't hold one currency (like USD) you hold a pair long or short. You can calculate the profit and loss down to the $0.10, even $0.01 with some brokers.

By averaging down do you mean keep buying on the way down waiting for it to turn around? I know some people who've been doing that with gold. They traded without stops and kept picking the bottom. It's not pretty for them, it's also how I leant the lesson to always follow the goldon rule of trading:

"Cut your losses short and let your winners run."

I think the issue with this conversation is that we have different timeframes. You are obviously very long term, I don't have the capital to have wide enough stops to ride out the swings on longer term trends. If I hold a trade for longer than a week that's long term for me. Most are opened and closed same day - even though I don't trade lower than the 4h timeframe.

You've been brainwashed by the forex forums you're been to about using stops. You said it yourself, you don't have the capital to trade big lots. That's why most people trade using high leverage in the first place. So you should trade smaller lots until the risk of a margin call no longer applies, and you will then be able to trade big time frames. You can make money with no leverage at all, if you reduce the size of your lots in order to adjust it to your capital. If you had bothered to read what I posted and look closer at the screenshot I posted, you would have seen I've been doing just that (on a demo accounts, I'll concede that, but I intend to return to real trading once I get a sizeable stake again). Do you really think that the BOJ buys and sells its monetary reserve 20 times a day, every time the dollar moves 50 pips (overtrading and using stop losses)?

[lycan]

What I meant is that your nominal equity not falling by more than 2% doesn't mean much. If you hold a bar of gold or 100 shares of Coca-Cola and their price relative to the dollar falls by 10%, you still hold the same amount of gold and the same number of shares in Coca-Cola, it just isn't worth as much in relation to the USD. The same applies if you hold 1000 USD in cash.

Originally Posted by Peterw

I think the issue with this conversation is that we have different timeframes. You are obviously very long term, I don't have the capital to have wide enough stops to ride out the swings on longer term trends. If I hold a trade for longer than a week that's long term for me. Most are opened and closed same day - even though I don't trade lower than the 4h timeframe.

Is this working for you?

[lycan]

Originally Posted by thehawkman

Do you really think that the BOJ buys and sells its monetary reserve 20 times a day, every time the dollar moves 50 pips (overtrading and using stop losses)?

Well the tools and goals of the BOJ are different than the ones of a regular trader, so that is not a fair comparison.

[Peterw]

Originally Posted by thehawkman

You've been brainwashed by the forex forums you're been to about using stops. You said it yourself, you don't have the capital to trade big lots. That's why most people trade using high leverage in the first place. So you should trade smaller lots until the risk of a margin call no longer applies, and you will then be able to trade big time frames. You can make money with no leverage at all, if you reduce the size of your lots in order to adjust it to your capital. If you had bothered to read what I posted and look closer at the screenshot I posted, you would have seen I've been doing just that (on a demo accounts, I'll concede that, but I intend to return to real trading once I get a sizeable stake again). Do you really think that the BOJ buys and sells its monetary reserve 20 times a day, every time the dollar moves 50 pips (overtrading and using stop losses)?

My leverage never changes, lot sizes are based on a 2% risk in accordance with the distance between entry and stop. I do it like this:

1. See entry signal
2. Decide where to put stop
3. Calculate position size so that if stopped out no more than 2% of account is lost

Your opinions and beliefs about what's correct and what isn't are your own personal preferences. They're not universal. I know people who trade very long term, and people who scalp the 1m/5m charts several times a day. They both make money and neither of them are right or wrong about 'overtrading' or anything else.

When you can get beyond thinking that your way is 'the way' and everyone else who doesn't agree with you is 'wrong' then you can make some progress. Who am I to tell the M5 scalper using an indicator system that he's got it all wrong when he makes money consistently? Or the long term value investor that he's being inefficient leaving his capital tied up in losing investments sometimes for years before they play out. As long as what you do works for you and you make money...

I've learnt that I am the weakest link in my results and that the key to success is to work on myself (Van Tharp course). My worst enemies are - ego, a need to be right (and make others wrong), impatience, greed and compulsiveness. These are all detrimental as at the end of the day it really doesn't matter what anyone else thinks and makes absolutely no difference.

Originally Posted by lycan

Is this working for you?

Yes - like a charm when I can follow my rules which is my goal for 2012 - learn to trade with no ego and follow rules like a robot. On that note, new rule. No more forum arguing - just get on with it and accept that people are different.

I'll always use stop losses though and advise anyone to do the same.