Doesn't (or Does It?) Take a Genius to Make a Decent Trader?

What do the real veterans think? I know that money management is essential for surviving as a trader; but I never looked at it as a solution for newbie traders (such as myself) which enables them to succeed while still making mistakes - read below.

Having now been trading FOREX for about a year - half of it live - and having blown an account or two while learning the ropes - I came to ask myself a very interesting question that I’d love to hear your opinion on.

In my assessment, the number one mistakes newbies - myself included - make when starting out is figure out that they can make 20-50% return on account in less than a week through a combination of extreme overleverage and successful trading.

The end result is people who aim for a 1:1 R:R and risk 20-40% of their account in one position that they’re sure will turn out to be the winning one. And sometimes it even is! But sooner or later, the winning streak ends, and they find themselves with an account that was emptied within weeks, if not days.

Immediately, they jump to the inevitable conclusion [B]trading is hard.[/B]

And, look, I’m not saying that trading is easy; but I honestly believe that technical analysis is not rocket science, either. It doesn’t take a genius to draw a trendline, a fibonacci retracement, or to spot a head-and-shoulders pattern or an ascending triangle; while these calls are all inevitably subjective (not even professional technical analysts agree on something as essential as support and resistance lines), they’re usually not that hard to make. And if you can more or less accurately predict at least half of the patterns, S&R and price action on Daily charts, you can easily enter trades with R:R way in excess of 1:1.

By overleveraging yourself, you force yourself to excel and do not allow room for failed trades. And the simple truth is, no matter how good you are, your failed trades will happen. Limiting risk per position to acceptable levels doesn’t just help you reduce risk - it gives you more margin for error and allows you to succeed without necessary being a genius trader.

Or, to put it another way, if you flip a coin, always bet on heads, lose $1 when tails come up but win $2 if heads come up, in the long run, you’re guaranteed to walk away with a profit - and you don’t even need to be any good to do that.

On a side note, if you trade off dailies, it’s not uncommon to get into trends that yield a R:R of 3:1. If you only risk 3% of your account to enter that trade, you’re already looking at a return of 9% if the trade works out, which is pretty damn impressive.

I think beginners can be do better by checking on the leverage. If they are able to reduce the leverage, it will reduce the risk been faced by the beginners and therefore reduce the amount of money the beginner can loss in the trade. The advantage is that the beginner will not be discouraged to leave the trading if he loss during the course of the trading excercise.He will still be learning and growing happily.

a) In reality you’d be unlikely to walk away with a profit because there arent that many people stupid enough to play a game with those odds.

b) This analogy bears no resemblence to a financial market. With a random entry you will not achive a 50% win rate unless the risk:reward ratio remains at 1:1.

If you have a 50% win rate for a system with a 2:1 reward/risk ratio you would be stupid not to apply the system as much as you possibly could. Over the long run you would average a 0.5R gain per trade. Even if the R/R is 1.01:1 (expectancy = 0.005R) it’s worth trading if the trade frequency is high enough. Only a fool believes the win % is the determining factor in one’s trading success.

Couldn’t agree more. Expectancy and profitability are by far the most important statistics one could derive from their trading. Win Rate and profit are useless statistics that tell you nothing about how successful your trading is.

Correct.

Sounds like my method in trading atm except I tinker with the odds with reasonable analytics. I don’t mind an R/R of 1:1, I’m focusing on good entries to tilt my odds to be more then 50% consistently.

By comparison, You could say I am trying to make a coin ‘jacked’ :p, and then cheating people by going up to as many people as I can and say, I bet the next spin is heads (knowing that heads is sliiiightly more likely to hit than tails is good enough)

Agreed 100%, you’d be certifiably insane not to

You’d also have to be certifiably insane to to play coin tossing game where you won $1 and lost $2, but if theres anyone out there who wants to play, I’ll happily oblige them