when dealing with Forex… Or in trading in general…
So in forex, what we are doing is exchanging currencies for another currency at a given exchange rate and then exchanging it back when the rate goes in a favorable direction?
If so, how the hell can we loose? Isnt it always fluctuating up and down so if you just wait it out, cant you always break even?
Basically, what im asking is as you can see, i am a total newb on everything so im pretty sure the school of pipsology isnt for me as i should have atleast some understanding. So where can i learn the base of base of basicS?
You should urgently look up some historical charts, and get informed how prices behave over time, before even thinking about trading.
I give you one example: USD/JPY (US-Dollar versus Japanese Yen).
Imagine you were a trader back in the 70s, and opened a long position in USD/JPY.
USD/JPY was at around 300 at that time. From then, it went down in a very, very long downtrend. Now (30 years later!) this pair is at 100.
What does that mean? A loss of 66%. Do you have the time to wait until USD/JPY gets back to 300? When will it go back to 300, in another 30 years? If it will ever do, something I doubt?
And this loss of 66% applies only if you were leveraged 1:1. Otherwise you had got a margin call much, much earlier. End of trading career.
Every financial instrument can get off in the direction you do not want, and never come back. Currencies can become worthless (recent example: The Zimbabwean dollar). Companies can get bankrupt (Nasdaq internet stocks in 2002; but also big companies like General Motors. Do you seriously think GM will ever get back to 50$/share, where it was some years ago? I don’t) . Scientists may invent a cheap and reliable method to produce precious metals in huge quantities, so the price of gold plummets to 2$/ounce and stays there forever (the last example is science-fiction, but not completely impossible.)
Sure? When I remember correctly, it was already done by several groups, but the costs are prohibitively high, an ounce of transmutated gold is enormously more expensive than an ounce of normally mined gold. The reaction was like this: Bombard Mercury Hg196 with slow neutrons, which transmutates then by neutron and electron capture into Gold Au197 , which is the stable isotope of gold as we know it.
I should know this, because I have a university degree in physics
I wanted to say (now back to trading): When trading, you should expect the unexpected. There are no ‘certainties’, only ‘probabilities’.
This topic is very serious, because of so-called ‘Black swan’ events, which can kill your account instantly, when you haven’t applied proper risk management.
Back to 1ken89, and the starting question (“can’t I just wait until a bad trade comes back, and then close the trade break-even?”):
Trading is a game of probabilities. You trade profitable when you apply a strategy with a so-called ‘positive expectancy’. When you trade a ‘negative expectancy’ strategy, you lose your money in the no-so-long term. Before looking into the trading world, you should learn about basic statistics.
You calculate the proftability of a trading system by the following formula:
ProfitFactor = (Average gain in a profitable trade) * (Probability of profitable trade) / ((Average loss of a losing trade) * (Probability of losing trade)).
When this number (ProfitFactor) is smaller than 1, your strategy loses money.
When it is higher than 1, you make money.
Ideal PF’s are >2, very seldom they become >4, only for really excellent traders.
Your proposed strategy has a ProfitFactor <1:
(Small gain in winning trade) * (99,99%) / (Devastating loss in losing trade) * (0,01%) is usually < 1.
It is much better to design a strategy like this:
(Big gain in winning trade) * (around 30-40%) / (Small loss in losing trade) * (around 60-70%). When you cut your losses very quickly by applying a proper stop and let your good trades develop until they show a nice profit, the ProfitFactor is >1, and overall you make money, Even when you have more losing than winning trades. Trading is not about ‘being right’, trading is about ‘making money’.
I just played on the demo version and by simply following the trend lines and resistance / support, I have made 2800 dollars.
I think im addicted to this and it is very fun. I started school of pips and jut got done with the resistance / support. Made the charts and drew the trend lines and stuff while playing the demo and predicted when i should leave and followed through. At first i was going prettty negative and then baaaam it felt home run.
Feels like a strategical game and I feel there is a whole lot more to learn and its only beginning.
Well, what about a huge finding of gold on another celestial body, that way the supply could drive down price to those 2$, so the only thing we know is that the future is unknown to all.
Btw Tymen, didn’t you know that dipping the isotope in chocolate makes it not only stable but also very tasty