it is been a year, since i got into forex, since then, i have blown 100€ no deposit bonus account, read some books, forum topics and backtested lots of ideas that came into my horizon.
There is this issue that i just cant find a reasonable answer to. I know that this industrie attracts lots of smart guys from different fields…Economists, mathematicians, programers…So, the potential edges that brings success is heavily exploited by these guys, the existing edges are dissapearing and new one arises and the cycle repeats. At least this is how i see things in this bussines and i could be wrong. The failure rate of 95% acctualy seems normal, its the same with any different occupation that has a potential of high earnings. Be it in sport or any other field that attracts talented and devoted people.
My question is this. Where do you see your self in this story?
Do you have the now-how to succeed? Are the informations available to average joe?
A times i get this feeling that its like trying to bulid a F1 car with junk yard parts at you disposal.
The thing is that i have spent many hours backtesting different strategies and results are poor.
What kind of strategies were you back-testing? since the results are poor would you mind sharing them so everyone could take a look to see what might be going wrong?
Well, i have gone through some popular strategies on forums, also some break out strategies, pullbacks…
Lately, when i read some books, i find whole forex very confusing, which i guess is the opposite as i was expecting…Every author has different opinions on even some elementary topics. Some times i feel like a moth beeing attracted by the flame. I guess is should read more books:)
Hi Pipo, at this point I would normally say read more but I can see you are doing that.
To be fair when I started in Forex I had a brief course with one of the most successful traders in the FX business, he worked for Goldman and a few others but I won’t name him here. It was more like a schooling than a course and it cost me nothing but my ears. His first thing was understand the concept of the failure swing. I was already coming from a theoretical finance background so as you can imagine I was clueless on technical analysis.
He simply says, a chart has peaks and bottoms h in down trends peaks are lower and bottoms are lower, in an uptrend peaks are higher and bottoms higher. If this stops happening get out. He called this the failure level. Simply if price is in an up trend makes a new high and makes a low higher than a previous low then buy and stops below the previous bottom. Price could potential continue higher. The reverse in a downtrend, Hold that position till price fails to make a new high then get out.
He also said Fibonacci is still used to take profit by large funds so draw a fib at your entry to the previous high and TP at the 161.8 fib level, cover at the 100 if in doubt.
He traded like this all his life (20 years). Now he exclusively trades gold on monthly analysis and is also an educator in the business and still makes good money.
My point is a system must be simple and you have to stick to it till your comfortable building on it. Little did I know that the above gentleman was describing Elliot Wave theory. I was later introduce to volume by stock and commodity traders and later Support and resistance in relation to turning points. Today this is how I trade combining all three methods depending on the market and I now use my own understanding of related markets in relation to currency e.g. Gold, Oil, Bonds, etc to validate my position. This took time to develop into a cohesive system. Now I trade with a smile on my face, win or loose.
Hi there, thanks for comprehensive reply. This is actually what i am talking about. I guess your trading is similar to the one that Anna Culiling is talking about in her books. You are describing a system which is quite complex with lots of discretionary elements, which for me it makes sense.
On the other side, there is this mainstream indicator/mechanical system debate, which from my point of view stands on shaky grounds. What i am saying is that if the concept behind a simple system seems total mystery and have no logic to me, i have problems with faith in that system.
You don’t always need complex analysis for a strategy. The type of strategy mentioned there doesn’t seem to be as complex as some actually. At the same time you can’t just expect to put a few indicators on your chart and expect to be profitable. A whole strategy could be made out of several fairly simple systems as this is easier than creating one system that works in all market environments (high/low volatility, Trending/ranging etc…).
A good strategy isn’t just about entry and exits you need good rules for managing your trade while its open(like the one described in the post above) and solid risk management rules. On top of this when you start trading with any significant amount of capital you will also have to learn to control yourself as your emotions will become the main factor in determining whether you succeed. This will be harder to deal with if you are trading in discretionary manner as opposed to with a mechanical method although it is also surprisingly harder to follow a simple set of rules when you are losing(or making) a large amount of money with each trade (even if it is a small percentage of total capital).
Can i ask what kind of risk(and trade) management rules you were using? Because if these are bad you wont make money even if your analysis is good!
Technical analysis is bullsht. It is an illusion. Show me a man who has made a fortune from it? There is no one. But there are people out there who took massive bets based on fundamental news who did make fortunes. Why? Because they took big risk. Big risk = big reward.
Useless is right, prior to 1987 crash, indicators didn’t exist or were the creation of the new crowd of technical analysts creating computations to simplify large amounts of data. Electronic trading appeared post the crash and as a result developers stole the opportunity to resurrect indicators, also the market makers that were now eyeing the public’s savings needed some kind of logical looking method to tell the little guy trading and investing is easy, we have ready packaged tools to help you.
In truth the only valid tool in technical analysis is the average price over a given time period, volume behind the price move and the overall psychology in the market i.e. are we in a down trend or uptrend an idea that can be explored in Elliott wave.
I am familiar with Anna Coulling a woman who has traded for 17 years and went through this same journey and managed to make it a full time job and make money. She creates her own indicators (over the past few months) but like I said I am not a fan of any indicator, she claims people seem to always want to be spoon fed so indicators that measure currency strength to decide what pair to trade, etc are helpful again I just look at all the pairs.
Her concept on relational markets like Bonds, is what macro funds use when looking at capital flows. This woman does do a lot of work with CME and also had a teaching background. It helps you understand the risk on a trade before you enter. E.g. Gold is falling, usually means USD is rising, simply gold is the ultimate safe haven and if money is flowing away from Gold it means it is flowing into usually more risky assets like equities or perhaps into the USD in the form investors choosing cash, the USD is also a cash safe haven relative to other currencies like Aussie that is a risky currency because Australia’s exposure to commodities, the riskiest asset class of all. So if the Aussie is rising, expect investors are risk on and we will naturally see safe havens threatened, especially if commodities are rising too, this will be seen in the equity markets potentially heating up another risky asset class.
The reason for all this headache is to understand what the smart money is thinking in terms of what to buy or sell. Remember if a Hedgefund has 100m of managed funds, they will not put it all in currency, they will diversify and if for some reason the fund gets risky then they will not buy Gold or Cash, they will buy equities at this point the other markets will be quiet as they will move cash from lower yielding assets to equities, this will result in a sell off to release funds into the higher yielding area.
On your technical analysis question of simplicity. Simply try and get on the right side of the order flow. Trade a Moving average like the 200EMA as I mentioned in another post. trade exclusively on retraces with Fibonacci setting stop below 100 or 0 and TP at 161.8% Fib level. These are all simplified approaches that most importantly prevent overtrading, entering risky trades or incorrect money management. All are simple and would ensure longterm profitability.
The problem comes when we want to improve this starts to breed complexity. Those of you who watch Stargate SG1 would remember the Asgard say to Sam Carter, “We are no longer capable of thinking of solutions in simple terms, so we need a human to help”. FX and experience is like this…
Its all an illusion actually if you are thinking you can predict the markets 100% with some form of analysis or skill. If you just make big bets due to the law of large numbers there will be some who get lucky and end up being praised as market geniuses (until they make another big bet and fail). However the vast majority of people who trade like this will blow a lot of money.
There are lots of people who have made money from technical analysis.
Do you know who Paul Tudor Jones is?(you really should btw, he’s worth 4.3 billion) well he really likes Elliot wave…
But anyway useless do you think you could buy me a small flat to live in when you make big bucks over-leveraging your account because as someone who uses technical analysis I am now fearful that I’m going to end up homeless
Just posted in this thread on Elliott Wave, a similar discussion… That is real market psychology. A rarely mentioned trading method but will make you very good if you mastered it. It is pure market psychology and incorporates money management automatically based on the principle.
If you read a book on a forex when you are starting out; and then re-read the same book a couple of years down the line when you have that couple of years of trading experience, and all that entails, you notice that the first time you read it you missed 60% or more of what that book actually had to offer you.
Alot of people confuse what is possible with what is probable and waste alot of time trying to achieve what is possible. Eg: Is it possible to break the current 100m world record?
Yes it is possible but is it probable?
Sitting at home in your office or bedroom will you create forex system that allows you to print money on request? It’s possible but…
If you have junk yard parts build the best car you can and sell it. With the money buy better parts and build a better car…rinse and repeat until you get to F1
After reading this comment, I stopped reading this thread. You are in a market where you have self-confessed that 95% of traders lose money and you go ahead to test some popular strategies on forums… well it’s easy to see why you and 95% of traders lose money if backtesting the popular strategies that make traders lose money makes sense to you.
Like I always say, forex is like a competitive sport. Some people are naturally good at it, some people put in the hours of hard work to become good at it and some people are just not meant to do it.
As you said only 5% of the people who tried the trading are going to succeed and 95% will fail. That should be tell you that becoming a successful trader is not a easy task.
