Hello guys. Last summer, I set a goal to finish the babypips forex articles. I didn’t actually finish them all but I got pretty close to the finish. I have to admit that I became familiar with many financial definitions and I am very grateful for this site. I haven’t started forex trading though, because I believe that babypips focuses a lot on technical and fundamental analysis which I’m not sure if they can be trusted and make a good trading strategy. I’m a finance major student (3rd year). Our professors always tell us about the Efficient Market Hypothesis (EMH). After learning about it and what it’s about, I can’t believe that the average Joe can make a decent and stable income in the long run. Can anyone, if anyone, who successfully managed to make forex trading profitable for him, honestly explain to me how he managed to do it and if it’s possible? (Respectfully, Not trying to offend anyone who has devoted many hours into studying forex)
I’m sure your professors are well educated and highly knowledgable in their field. but are they the right people to consult on trading? Would you ever think of asking a concert pianist how to drive?
Being profitable or not is something you have to try yourself and see the result for yourself because the answer and result is different for everyone. Some were very profitable and some were not despite their efforts.
You’re right, they can’t. The average Joe is looking for fast, easy money and quickly learn that FX is not the way to do it.
It takes a lot of patience and time to develop a strategy that will provide consistent results, and as mentioned above, some never find it.
The best way to trade FX is by looking at the bigger picture, trend direction on weekly and monthly charts. That’s where the big boys are.
Find a strategy that will allow you to trade in the direction of those longer and term trends and you can make consistent profits.
They have Phd in finance, masters in several fields including maths, risk management etc and couple bachelor’s degrees in related financial fields. I’m pretty sure they are not as irrelevant as you think.
I’m just curious if anyone here is actually making a decent income in the long run. Because many can actually get some short term profits by luck but in the long run almost everyone is losing it all and gets beaten by the market. If anyone is actually making profits for several years then wow! He’s in the top 1%
Are they trading?
I haven’t heard about this theory, can you please explain what does it mean? thank you.
Exactly right. The big boys utilise the SMA 200 to place their positions. an average retail trader most likely does not have the big boys account size to place their wide S/Ls, which protects them from daily trading movements.
As an aside my pro friend who manages hedge funds, only trades the USD majors, mostly GBP/EUR/JPY and he caters for daily adverse movements by placing a wide S/L that has been tested to only being hit a small percentage time.
Making forex trading profitable ain’t easy, but it’s possible with some key ingredients. You gotta keep learning, be disciplined
Firstly, the EMH is a theory, or you can call it an idea, that cannot be proven in reality. Nevertheless, it is a creative idea. My impression of the EMH is that people who believe in it religiously are DONKEYS with a very negative mindset. The world we live in has many things that cannot be explained by the primitive science we know to date. There is much more waiting to be discovered and explored. My take on the EMH is that although it may be somewhat true that past historical information or data may already be reflected in the current price and may not be useful in predicting future prices, that is also why sometimes technical analysis doesn’t always work.
A successful trader usually uncovers some form of trade secret. They exploit tiny windows of opportunity using statistical models. For example, a simple idea like central frequency distribution. An analogy would be a trader observing a large force hitting a stone and collecting a series of data to predict how much further the stone will move. They make use of this information to predict the central frequency distribution, much like making weather forecasts using statistical models to predict future weather.
When we talk about statistics, there is a percentage of success as well as a percentage of failure. The EMH is right in the sense that because the current price already incorporates all relevant information, it becomes difficult for investors to consistently outperform the market. Thus, it becomes an endeavor that closely resembles grinding in hold’em.
Can someone be consistently profitable in hold’em over the long run, when they are not on tilt? It is important to cultivate the ability to QUIT WHILE YOU ARE AHEAD and stop for the day. The same goes for trading, and I think that is how someone can successfully make forex trading profitable for themselves.
Of all those degrees your professors have…are any of them in psychology or human behavior? because that’s VERY important as much as knowing numbers and such. The late Mark Douglas was the granddaddy of market psychology
Your professors along with almost everything else on the internet are using dynamics from 30-50yrs ago, this is how long it takes to filter in to academia, you are correct the average Joe cannot make a decent and stable income, only those in the top 0.2% achieve it, most people class $1 profit as success but even that has a 92% failure rate.
You are successful by targeting the 0.1% on a normal distribution They got the maths all wrong... | Page 2 | Elite Trader but as you will find out everything you will find anywhere is dedicated to the peak of the normal distribution, not the long-tails.
The other way to describe it is that the world uses a logarithmic curve to generate profits, only the markets have discounted this and will offset with losses netting you zero, however with this you need to be all-in most of the time and when a black swan event or ‘hijacked capital’ event comes along it destroys your capital.
The only way to solve this is using an exponential curve of profits, along the lines of Einstein saying compound interest is the 8th wonder of the world, however if you think there is no information about 0.1% long-tail you will be amazed that there is zero knowledge about exponential profits, because no one is ever taught this and yet it is how institutions generate their profits which is the method we use to generate profits, at your expense and with Forex leverage being faster than slower, this is how it is.
Update: I rushed to make a post about Efficient Market Hypothesis. Please read below. First of all for anyone who doesn’t know about this hypothesis please read below.
Efficient Market Hypothesis (EMH) comes in 3 forms:
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Weak form
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Semi-strong form
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Strong form
Firstly, Efficient market means that prices QUICKLY (sometimes in minutes) and PRECISELY(correctly) adjust to the correct prices. Example: A company announces a higher dividend than the market expected. The expected reaction for this event would be: Price of the stock goes UP (NOT DOWN- Precision) and this happens in minutes (QUICKLY). -
Weak form states that all information from historical/ past prices are reflected in the current price. So in a few words, it states that Technical analysis is worthless
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Semi-strong form states that all information publicly available are reflected in the current price. That means that fundamental analysis is worthless.
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Strong form states that all information (public & private) are reflected in the current price. That means inside trading occured (which is illegal)
Bottom line: There are many studies showing that EMH holds but sometimes there are anomalies where the market is innefficient and people can make excess returns through various strategies. Academically, technical analysis, fundamental analysis etc. are worthless BUT in the real world, many investment banks and investment companies have technical analysis teams who are responsible to locate these anomalies/ innefficiencies in order to make excess returns. Saying that EMH “is for donkies” or “it is pessimistic” is pathetic. The man who introduced the concept of EMH, Eugene Fama won a nobel prize because it contributed so much to the finance science. BUT, EMH is not to be taken for granted. Mr. Robert Shiller won a nobel prize at the same time as Fama because he was an EMH critic.