Just Don't Get it

Beginner Questions
1

I keep hearing people lose money in FX. Up to 95%. Why?

I’m new to Forex, but traded Stocks in the past so i know or have heard of most of the indicators.

If you took a single indicator such as PSAR and just follow the dots it appears you would make money. Or how about Moving AVe? Just follow the cross overs and it appears you would come out ahead…in the long run.

So why do people lose Money?

Drawdown? Why not just trade micro lots and use just a single indicator? And if you can’t deal with the initial loses even with Micro’s you shouldn’t be trading forex at all.

I’m a newbee so just playing the devil advocate here.

2

My belief is that 95% of the people are looking for a “quick” dollar and don’t put the effort into learning how to trade and then quit.

3

I gotta agree with that. A few people I know just don’t care for actually learning how everything works and they just end up throwing money away…I’d say they’re in the 95% :slight_smile:

4

Have you tested that? It’s absolutely not true!

Look for an old thread here on Babypips called “Parabolic SAR, and that’s all” (or something close to that name). It will tell you why something like this won’t work.

5

and quite frankly showing you have no idea what you are talking about

6

Let�s see…hopefully I can be more helpful than Tonymand and his warm welcoming and information packed reply. WADH…

Anyway, 8 months ago I would have asked the same question about indicators. In the past I traded stocks and stock indexes using my favorite indicators and they all work well. And I assumed indicators would work as well with forex too. But when I started trading on a demo account I quickly found out that forex trades a lot different!

Indicators that worked great with stocks didn�t work the same. Some still worked but differently and others not at all. Indicators that gave me good results trading stocks didn�t perform nearly as well with forex. I could make good stock trades relying on just a 20ma and MACD, if I tried that same 20ma and MACD with forex I think I would be lucky to breakeven.

The trends in forex are so much different than stock trends. Forex seems to spend most the time moving up & down between support and resistance levels and moving along trend lines and channels. Stocks follow support & resistance and trend lines too, but stock trends seem to have more to do with being gobbled up by mutual funds.LOL!

My quick advice would be to pay lots of attention to support and resistance levels and less to your traditional indicators. I�ve found the traditional indicators just don�t respond the same way, I think in part because of the 24 hour market, periods of low volatility during the asian session countered with the high volatility European and North American sessions. I don�t really know how to described it, just different than stocks.

It’s fun and challenging. Which is harder to trade, stocks v foerx…I think it all depends on the leverage used. Without leverage forex is really slow moving and drowsy. But add 100:1 leverage and man it�s a$$kick time!!!

Good luck!

10

By the time you get through a period of trading, an indicator has changed umpteen million times. Moving averages get pushed up and down by moving price, stochastic lines cross and uncross pip by pip sometimes, and if you don’t actually sit down and trade every single trading day for a few months, you really don’t get it.

Indicators are great, but THEY MOVE! They don’t give clear signals 100% of the time, and certainly not over a period of time you may be in a trade. Until you sit down and actually do some demo trading, you really don’t understand the dynamics of trading forex (or any other market, for that matter).

11

I agree. The idea of gobs of money pulls in many people, and like any other profession, if you can’t focus your energies on becoming a skilled, disciplined trader that enjoys the actual act of trading and will do anything to learn more and more, then it’s totally not going to work.

12

Gerald Appel, inventor of the MACD, tells us that stocks go up about 75% of the time.

With that in mind, plus the fact that you can only trade stocks in long form (at least, that is the case in Australia), means that getting it wrong in stocks is much less likely.
In forex, you can trade long and short - 50% chance of getting it right.

Furthermore, there is an edge against you in forex since your broker charges a spread and this puts you behind even from the start.

Stocks appear to be more trend stable with greater volatility so that you can make greater profits for smaller increases in price action.
If the price goes down, sitting it out will almost always see you go back into profit later.

Forex appears to be more “touchy”, reversing direction even as you enter.
I think there is a lot more combat going on in forex for who gets the profits.
The rapid drawdowns in a reversal cause traders to bail out on their stop losses more quickly.

In stocks with no leverage, you can sit out a drawdown.
In forex, having a drawdown for many days will cause interest to be charged against you from the rollovers.
This will kill you in the end if your drawdown lasts a long time.

The leverage factor does not exist in stocks, hence no possibility of a margin call, because you are not using someone else’s credit.

With forex, having leverage means you can make profits quickly but also losses quickly.
With stocks, having no leverage means you make your profits slowly and any losses slowly.

So with stocks, the way to make money is to invest large amounts to start with.

Hope this helps. :slight_smile: :slight_smile:

13

Have a look at this diagram >>>


By tymen1 at 2009-01-16

16

To overcome this edge against you in forex, we have to invoke the [B]First Fundamental Theorem of Trading.[/B]

This Theorem simply says…“The trend is your friend”

As I see it, this is the [U]only way[/U] in which we can overcome the tremendous house edge against you.
That is, we must trade the trends, both in the long and short timeframes.

In the [U]short timeframes[/U], entries are critical, as are the exits.
The trend could reverse at any time, and there is little room for making pips.

As such, candlestick trading, s/r lines and price action trading is called for.
As said above, indicators are effectively useless, especially because of their delayed response.

In [U]long timeframes[/U], things are not so critical.
Indicators can be used with greater effectiveness.
They tend to more “generalise” the price action movements.

[B]In both cases, however, the trend is our key to making money.[/B]

18

I couldn’t disagree more!! :smiley:

  1. Forex prices move based on supply and demand just like stock prices. If they didn’t then candlesticks and S+R lines would not work!! How can you trade the trend, as you suggest, if banks can change the price direction on a whim?

  2. Sometimes you pay interest, other times you gain it. It all evens out in the end.

  3. Whether you pay $10 in spread or $10 in commission you are still down $10. Just because the counters start at different numbers doesn’t mean you aren’t paying the same.

19

OK then, I said at the outset that I was not an expert in this area and am standing in need of correction if need be.

[B]Would you care to elaborate on point 1?[/B]

On point 2, I was referring only to trades in negative position, in which case I think you are charged interest against you every time regardless.

I shall give point 3 a little more thought.

I also hope to hear from others regarding these points I have made.

20

[B]I see that I have made a number of serious errors here.[/B] :o :o

I have done some research on the internet and I understand the risk matter much better now. :slight_smile:

The fact is that stockmarket risk and forex risk can be the same.

It is not so much the market that has risk but rather the risk management of the trade.

In forex you can stretch out to full leverage and no stop loss!!
Then you would have the riskiest position ever.

Or you can go for a 2% of total account stoploss position and set trading amount accordingly.
Then together with a win/loss and risk/reward >1, you would have a sensible trading risk.

With high liquidity in the forex market and 24 hour trading, the risk can even be lower than stock trading.

I will now delete my previous erroneous posts!! :wink:

21

Some really good info here! Price control is very interesting to me…if there is any more information you have or can be directed please share.

I’m actually guilty of playing the riskiest positions :o …my profits fluctuate daily by a several K (both in terms of pips and $$$) in which doesn’t bother me due to the trends seen in the outer)…over all this is working really well.

BUT…it is very risky as I see fluctuations that translate into several thousand of $$$. I have also been able to estimate where my profits will peak for the next day within a $4k range. Now this is all dependent that the current trends continue and that no unexpected news or incidents (such as 9/11) occur.

22

Well… frankly I don’t know who conduct such survey i was read like 90% fails at 2005ish
so until now i see % this % that without any solid proof who conduct the survey and how they conduct that.

I think that kind’a survey is just to scare newbies around flush them with BIG NEGATIVE energy… subconsiously they memorize the fails, after that they meet monster market so then the statistic become true cos they to scare to face the monster along the way some went crazy some kill himself some just half nuts… only little can re brainwash and survived…

since 2004 till now the survivor in forex between me and my online friends if i count there are only 4 (includes me) out of 20 thats the real statistic… from me…

and the successful traders are 3 + 1 out of 4 hehe i’m still doin it :slight_smile:

and the retired one is 0 out of 4