It’s true - they do.
But 3-4 hours per day is a lot of time.
The great advantage is in numbers of trades. The bigger the sample size, the more reliable the statistical conclusions based on them, and potentially the smoother the progress.
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So, to the question, is 3% return per month a realistic goal. Sure, it can be done. Not by everyone, only small percentage of traders is profitable at all. Best ones make more and most do less. So it all comes down to how good is your system and how good of an trader you are. You have atleast an right attitude and don’t try to become millionaire in few months. But have to say, Im bit skeptical on too simple rigid systems, I doubt that the moving average crossover system will make you that 3% per month.
I have personally gotten a lot better results after I abandoned trying to follow different systems, and read a lot about candlestick patterns, resistance levels, chart patterns etc and spend a LOT of time trading demo account. Currently I trade mostly 5 minute charts and spend 4-8 hours a day doing it, and I really have to say that there is nothing that can beat pure experience, after all the work done, reading the charts come “natural”. While I understand that you may not have the time to do the same, I truly believe you could benefit from trading demo account on smaller time scale.
Really good advice, right there.
Ok, I just finished back testing EUR/USD on the 4 hour chart and this is what I learned.
First, trying to get historic data in NinjaTrader for free is like pulling teeth from a crocodile. Lowest level I could get was daily. So I signed up for a 30-day trial from Forex.com, downloaded their client, and launched their advanced charting to get to a dressed up version of TradingView.com. Regardless, it worked, so I went with that.
Second, my strategy gained a total of 494 pips over 18 trades for the last 12 months. The win rate percentage was 55.5556% and the average pips per month gained was 41.1667 pips. Even at a $500,000 account swinging a 50 pip stick, this strategy wouldn’t yield anything near a full time living. I attribute that to the low number of trades this strategy generates.
I might keep this in my plan because after all, it was 41 pips on the EUR/USD pair, but it is not going to be my main focus. It does seem to catch a few good trades here and there, with my best trade being 220 pips and my worst trade being -26 pips. It only took me 90 minutes or so to back test on the four hour chart, so I will probably back test a few more pairs under this strategy just to satisfy my curiosity.
However, it’s back to the drawing board to read up on patterns and Fibonacci levels because they seem interesting and I definitely like having support/resistance levels available to me as a tool for setting targets and stops. The strategy I back tested relied on a fixed 100 pip stop and waiting until the moving averages crossed in reverse or RSI to cross over 50 in order to exit the trade. Not my cup of tea…
Anyone have any advice to offer regarding what patterns or other technical analysis tools I should be focusing on learning next?
Great conversation going here. I am a bit more of a risk taker, and I would advise if you have a few hundred bucks to play with. Go live. I am not a fan of demo, other than to learn to use the software. If you plug say $500 into a real account, you now are dealing with the spread and or commission and or swaps etc… which are a real reflection. I also thing forward testing is where you learn the most about your trading , psychology etc.
I personally have opened several $500 accounts to start, and simply call it my education fund. I guess it is a matter of perspective.
Good Luck on your journey.
I am a bit more risk averse than that, especially at this stage of my trading development. I would like to get my strategy sorted out first and tested so I have an idea of what to expect. Right now I am trying to formulate some rules for entry based around double tops / double bottoms and .618 retracements but I am not quite sure how to write them.
For example, to get long, I want to see a double bottom and a retracement to the .382 level on the 5-minute chart with an uptrend on the hour chart. Stops would go at 25 pips below the lowest close in the double bottom, and target 1 would go to the .618. If .618 is reached, stop goes to the .382 and target 2 goes to 1.272. Stops trail by 15 pips on the way up to the 1.272 to maximize profits in case of a market reversal.
Hmm… I guess I just wrote the rules that I had a hard time writing 
For short trades, same thing except with double top instead of double bottom. Of course, my fib levels are fairly arbitrarily chosen, and the trade setup is strengthed by those levels corresponding to previous support/resistance levels but doesn’t require them.
Am I on the right track in thinking about this?
You understand that results from 18 trades have no real statistical significance, right?
When you have the results of 1,800 trades, you have something to look at and analyse.
This is part of the problem of a 4-hour chart system that trades once every 6 weeks.
It might work. It might not. It’s going be terribly difficult to tell which.
But you need to know first, so you can make an informed decision about what to do when it has a 6-month losing period, because this system, whether it has a real edge or not, WILL have a 6-month losing period at some point.
All Fib levels are arbitrary anyway. Fib levels aren’t real. That doesn’t necessarily make them invalid or a loser, it’s true. Millions of people believe in the I Ching, and thousands of people trade according to the phases of the moon (honestly, they do) and some of them swear it’s profitable. I’m not advising you to use Fibonacci, or not to use it, just to appreciate if you want to use it, that you’re using something which has never had any real, mathematically valid evidence for it published, other than anecdotal stuff produced by its own enthusiasts.
I wince when I see people wanting to trade and wanting to make money from it, however modest and sensible-looking their ambitions, when what they’re asking for advice about is something based on “moving average crossovers” and “Fib levels”. Everyone starts off in this business with the odds against them, and these two parameters just aren’t things that will help to get the odds in their favour.
Yep… which is why I am not using that system. I have some curiosity about it, so I will be using some of my free time that isn’t allocated to trading for further testing on additional pairs and more data. My thinking is that this system wouldn’t be used as an example in the School section if it wasn’t a valid system. While it may have a low expectancy of profitability, there has to be some sound logic behind it based off someone’s experience.
What should I be looking at to base my entry and exit rules off of? My apologies if you already stated it and I missed, I am sort of learning the lingo on the fly. The educational materials made sense when they described Fib levels as being popular spots to place orders at making it a somewhat self-fulfilling prophecy.
Or is a real edge in trading completely illusionary?
It shouldn’t be used that way, as an example of trade entries/exits.
Unfortunately, some of the authoritative-looking material with which the site directly and indirectly attracts traffic has no real validity.
Somewhere along the line you’re going to need an understanding of price action.
I’m not suggesting you should avoid indicators, but the people who are trading profitably with indicators also have a good understanding of price action parameters. Acquiring that takes time and experience.
Many successful retail traders are using one or two indicators (rarely more) to determine “trend”, according to their own system definitions, and then using price action to time their entries in accordance with the trend their indicators have determined.
A moving average crossover with one or two additional rules could be a perfectly good way of identifying the trend.
It’s a mistake to imagine that one can easily find a working system with a real edge and just copy it, without that understanding, and that everthing will work out ok.
It almost never does.
The reasons that’s so also need quite a bit of experience, to be understood.
Sorry for telling it like it is.
No, it definitely isn’t.
And nobody should be trading with real money without having a real edge (but of course large numbers of people are - many of them don’t even know how to tell whether they have a real edge and are just trading on a wing and a prayer and a Fib level and thinking something like “Well, it said so on some authoritative-looking website, and loads of other people seem to believe it”. Those aren’t people who are making a profit.)
But there’s much, much more to developing one than moving average crossovers and Fib levels, and it isn’t a quick or easy thing to do.
Again, sorry for telling it like it is.
So I could for example use that moving average crossover with RSI and Stochastic indicators to see if the market is trending on say the 1 hour or 4 hour chart, then drop into the 5 minute chart to enter/exit trades based on price action? Right now I am reading harmonic patterns in the Education section, specifically the ABCD pattern. Would looking for the ABCD pattern to complete at previous resistance be an example of using price action like you mention?
To me, when I hear price action, I think support and resistance levels combined with market trend or channel. Am I thinking the right thing, at least at an elementary level? Or do you mean something different when you say price action?
How do I progress from here to that understanding? Is it solely time and experience demo trading, with trial and error on what trade setups to use, or are there any good books / YouTube channels / etc… that can reduce the learning curve?
Thanks!
So I was looking at the EUR/USD 5 minute chart, and I think I see a potential ABCD pattern forming.
https://www.tradingview.com/x/5URYtplv/
I drew lines at support and resistance. Right now, I am thinking shorting (not with real money!) at around 1.14600 if the pattern completes, with target at 1.14314 and stop at around 1.14685. That would give me a good risk:reward ratio, and be assuming that previous support will be retested after pattern completion.
I think from four hours to five minutes is probably too big a drop, but that’s the idea.
Sorry, I have no experience at all of that indicator and can’t help you.
Yes, very much.
Here’s a thread that might help. How did you learn?
Perfect, thank you! I will look through the books in that list and probably order one this weekend. In the meantime, I am going to review the price action related section of the school and see if I can piece together a strategy based on price action with an indicator to help indicate the trend. I am thinking RSI most likely for that one.
This way I have something that I can start back testing with and at least get some more practice on the charts and using the various drawing tools while I refine my system.
@jseymour84, it sounds like your strategy is purely technical. Have you tried testing it on a shorter time frame to see if the results are of similar quality with a higher trade frequency? You mentioned you were trying to get free data on your NinjaTrader demo with us, and the shortest time frame you could get from NT was daily.
Do you actually use their platform to automate your strategy? If not, you could retrieve more historical data with shorter time frames using an MT4 demo.
@FOREX.com : Yes, the strategy is purely technical. I don’t really know enough about fundamentals to really trade on them, and I am currently studying up on Gartley patterns and price action strategies. I don’t do any automating. The only reason I started with NinjaTrader is that I saw a trader that does trading blogs on YouTube use it so I figured that was as good a place as any to start.
For a platform, the only things I am looking for is easy to use charting and the ability to place orders directly from charts, along with the ability to adjust stops by dragging them up and down - sort of like how TradingView does their simulated trading. I’ll try out the MT4 demo to see how I like that.
If you couldn’t tell by now, what I don’t know about trading could fill the Library of Congress 3 times over
Good question, there. Sometimes lower win rates are actually more profitable overall because of the increased numbers of trades that accompany them on a shorter TF.
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@jseymour84, thanks for those additional details.
The reason we asked if your strategy is purely technical is because then there should be no reason you can’t test it on shorter time frames provided you have the appropriate historical data. Shorter time frames should give you more trading signals, and since this is a demo account, there’s no harm in seeing if the strategy yields positive results with a higher frequency of trades.
Since you don’t automate your trades, you’re not married to a specific platform. And as it happens, FOREX.com offers all three platforms you mentioned (NinjaTrader, TradingView and MT4), and we offer free demo accounts for all three as well.
The reason you might want to consider MT4 specifically at least for you demo testing is because you said you wanted more free historical data. With MT4, you can download data for shorter time frames from the MetaQuotes history center as shown in the following video.
We’re all here to learn from each other. 
Thanks! I will definitely get an MT4 demo account on Monday
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Best conversation I have read in a long time, thanks @jseymour84 for asking on the questions that r in the back of most beginner traders (or I should speak only for myself). @LaughingCharlie, “telling it as it is” is very refreshing. We might be beginners but we not dumb, the ppl promising “from $2k to $75k in 2 months” actually drain my energy levels (I know BS when I see/smell it).
I feel rejuvenated & I admire how methodological @jseymour84 is approaching this, I am inspired to do the same.
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Is 3% realistic, Yes, is it realistic for you and your system, that can only be answered through months of real life trading, and even if you do make 3% or more per month over the 12 months, that does not mean you will make same over the next 12 months. On my own thread I am on a 10 of 11 trade win streak but I know this is not a sustainable and I am not going to make financial plans based on a 90% trade win rate. Bottom line, you can not work from a fixed profit % or win%, and markets change, so what worked really well this month might lose money the next two months
Good luck