This is the number 1 reason, a million times more important than everything else. Psychology means NOTHING if you have a system that you know it works. Discipline is crap if your system is crap. Enforcing a losing system to yourself only means that you keep driving towards the cliff. The cliff won’t move just because you are disciplined. If discipline and bad psychology was the problem, then most EAs would be successful. Overleveraging and bad money management can wipe out accounts, but in the end if one is CERTAIN about his system, he will find money and try again.
If you don’t have a good, proven, profitable system, no amount of psychological manipulation and money management is going to help you. And the truth is that most traders lose money because their systems are crap, not because they didn’t stick to them.
I agree with you. But be careful with your use of the word " System ", because it implies that all people have to do is to get hold of a good system and they are away. In fact, and I’m sure this is what you meant, you have to devise a system through much trial and error, and this takes years, not weeks or months. Once you understand how the price moves, and you have a system that gets you into and out of the market so that week in week out you are in profit, then yes, the psychology looks after itself.
Well, this is true for the vast majority among us. But one could also be very lucky and get a system without any effort at all. Eg, I think I have finally built an EA that is consistently profitable: Through backtesting I have found that it generates a profit every year since 2003. If I am correct, and if it continues to be profitable, and since this is an EA and no psychology is involved, I could give this to someone and he could make money without any effort. I am sure that there must also be other cases of money easily made in trading - either because of a good partnership, inside information, or simple serendipity.
After all, some people never bothered with money because they got all the money they could ever want from a good marriage. No effort at all
Well you should sell it then and become a millionaire, and you’ll be just one of the thousands of gurus who sell supposedly guaranteed profitable systems that even a monkey could earn money with. Sorry, I disagree with you, because just having a system where you automatically place a trade every time A crosses B or whatever won’t be enough without the time accumulated knowledge that only spending many thousands of hours in front of a screen can give. The markets are far too complex for someone to be able to do as you claim. I know scores of people who have purchased winning systems only to fail miserably with them. I myself purchased one five years ago when I first got into trading, but it wasn’t long before I realised I was wasting my time unless I committed myself to figuring it out for myself, which is what I did.
Well, don’t disagree with me, disagree with my backtesting results that show an average profit of 100 pips per month from 2003 to 2012.
You see, the difference here is that I’m not selling it, I’m not giving it away, I’m not donating it and I’m not exchanging it for something else. It always seemed to me rather peculiar that authors of successful EAs or providers of accurate signals would sell them for $99.5 instead of making lots of money with them. And it still doesn’t make sense to me. If I ever get so rich from such a system that I don’t need any more money, then I will give it for free to a few selected people. If you ever see me selling something (signals, EAs, books, mentorship etc) then this will mean I have failed as a trader
I’m extremely happy for you that you are making money as a trader, really I am, because I know how it feels to eventually get there after so much effort and failure along the way, and yes, I agree with you, people who sell systems will only be able to show you how their system works in historical time. Get these people to demonstrate their systems ( if you can) in real time, and the results will be very different. There is a massive market out there with so many people coming into trading at the prospect of a lucrative and easy lifestyle, and naturally, there will be no shortage of people trying to exploit this situation.
When we see successful traders employing certain systems, they often say that discretion is necessary and that the nature of the markets will ensure that a trader will always be better than an EA, and so on. I’m fine with that, I understand that certain capabilities of the human brain have not been programmed (yet ?) into algorithms and it may be many centuries before we can simulate a human brain with software. However, the completely MECHANICAL part of the system MUST have an edge, right ? I mean, if you say that “I enter when price is above the 100 EMA and retraces so that it touches the 5 EMA”, or “I enter when I see a pinbar in the direction of the daily trend and RSI is overbought or oversold” etc, all these rules CAN be programmed into an EA. Sure, you can filter them with human discretion, but what’s the point of the rules in the first place if they don’t give a greater than 50% percentage of success when traded by an EA, completely mechanically ?
I have programmed a lot of popular systems into EAs, making sure that I strictly enforce the rules. And even though some traders of those systems may be successful and make money, I’ve been amazed by the fact that the vast, VAST majority of those systems show NO EDGE when traded mechanically. At least nothing that can overcome the spread. A small consistent profit would be fine, but what I usually get is more like pure chance. Which makes me ask, what’s the point of implementing those rules in the first place ? If they provide no edge at all, then what exactly are the traders supposed to improve with discretion ? Why not enter completely randomly and use discretion to manage the trade ?
So, I don’t doubt that discretion can help trading, and as evidenced by my tests, some traders can be successful using ONLY discretion (since their systems have no statistical edge). However, here lies the problem so often encountered: Discretion is based on a lot of subjective things like psychology, mental abilities, stress levels, tiredeness etc. When things go wrong (as they inevitably will, sometime) then if your system has no statistical edge, no amount of discipline and “sticking to the rules” will help you. You will begin wondering whether the system “is not working anymore” (when in fact never did) or you will begin to think that you have “lost your touch” which only make the things worse.
That’s why I like my systems to have a proven statistical edge.
Trading is not gambling. It is a game of probabilities.
All gamblers do not loose. Stupid and impulsive gamblers loose money.
Read “Gambling for a living” by David Sklansky
I think all of your points can be boiled down to:
[B]****y and Greedy N00bs[/B] putting [B]too much money[/B] in the market [B]without a plan[/B] and with [B]too much hope[/B].
Removed each one systematically and you get a winning trader.
Well you don’t need to remove Greed!
And maybe not ****y if he’s smart!
Think about it PipSlayer,
Why would he work his butt off to make a robot that makes money and then spend money advertising it so he can sell it and make money?
If I made an EA that works, I would boast around the forums but not offer to sell it. Which is what mimic is doing.
So makes me believe his EA must be genuinely in profit…
It comes down to capitalisation or, to be more exact, lack thereof, and risk or money management or, to be more exact, no implementation thereof (the two are inextricably linked). Some time ago I read about an experiment. It is (or was i.e. I’ve not looked at the website for many months now if not a year or more) detailed on Chuck Le Beau’s website (forums). Entries were taken on random instruments randomly. With risk or money management correctly implemented: the end, overall, result was profitability. Alright: admittedly the correct placement of stops played a part too (apparently). By reducing your risk per trade to, say, 0.25% of your trading capital you’re automatically skewing the chances of profitability over time in your favour. Problem??? There would be W-A-Y fewer people able to trade because they’d not have the capital necessary to trade and implement risk or money management. And this all then comes back to the “turn $100 into $1 000 000 in one year” bullsh*t that’s shoved in the face of new traders every time they visit a trading related website or trading related forums. (There’d also be W-A-Y fewer brokers)!!! LOL!!!
Alright: a semi-decent technical trading system and some ironclad discipline will help matters. No question. But I would argue that even the finest of technical trading systems and ironclad discipline will be useless without enough capital and without the correct implementation of risk or money management.
There are lot of reasons to loose money in forex. me traders had low trading skill experience and knowledge . Even after getting success we can not say now trader will not loose . He can loose any time due to any emotional trading step or bad analysis , wrong entry in market etc…
