I’m a computer programmer who got into FOREX trading about 4 years ago. Since then, I’ve been analysing this market, and this are my conclusions:
This is a random market.
Market moves (considerably) only when news comes out.
Your broker will not quote you when market moves considerably. Your stops will be ignored and your money management strategy will be ruined. Of course, this does not happen when you backtest a trading strategy.
You’ll be profitable only while you are lucky.
Don’t be fooled, the only guys making solid money in this market are trainers, brokers and companies selling trading bots (that work until you run out of luck).
I will post on each of this points when I have time, cause I don’t want to sound like another frustrated trader. I opened a 300$ account 4 years ago, and I have 150$ now, so it’s not a big deal, I don’t really care.
This has been enough to try some systems, and programatically and statistically analyze this market, so I can back up all of this statements with some kind of “proof”.
So the only point of this posts are to share my experience, and hopefully find someone to open my eyes and stop me from quitting this market and putting my time into something else. Coz believe me, I’ve really tried making this work for me, but no luck so far!!
The last thing I’m planning to do in FOREX is putting one of my “random market” bots in my account, and see if I hit the jackpot!
I am not sure that “random” is the right description here. Perhaps erratic, complex, unpredictable, confusing, illogical, and surely many more descriptions might apply, but not really random. What one sees in market movements is often a function of what dimension of the market one is looking at. If one stares too long at price movements on a 5m timeframe then it is certainly hard to find any logic there. But on a daily, weekly, monthly timeframe there are clearly trends that form and continue and have an identifiable reason for them - albeit often after the event! - but that does not make it random, just maybe a little camouflaged…
We should always remember that foreign exchange is not all about speculators just taking a view. There is a real, commercial movement of funds between currencies which relate to changes in economic and trade conditions, government monetary policies, investment opportunities, risk developments, etc, etc. These are not random changes. However, when we add a considerable layer of speculative trading on time frames from weeks to mins or even ticks then there are interests in both directions at every pip we pass through.
This is why we need a strategy that can identify the red line that is winding through the fog of price irrationality and a brain that can interpret what is realistic.
One thing is for sure, there is no point is seeking an automated approach that works on repeated reaction anticipation in response to pre-determined events because a currency does not always react in the same way to the same events - and, of course, forex is about a relationship between two currencies, never just one.
Certainly, a currency pair may move considerably to certain news events, but not to all. You are referring here to a fast considerable move. But there are also moves that are considerable that can take place over a period of even years. Structural changes in economies, natural resources and industries, for example, can take a long time. Again, this depends on the timescale one is focusing on. If you only look at a 1 hour or 15m timeframes, for example, you will be see a disproportionately large and fast move after certain news events that may not be so unusual on a longer term chart.
I have never had this problem - ever. Even in relatively fast markets. I do not personally look to trade volatile data releases like NFP, but the unexpected can and does happen at other times, too - I have not had non-quotes or ignored stops. There are, of course, the famous “black swan” type events, which fit your description, but these are extremely rare and certainly not the norm for a trading environment.
Of course, there are brokers who will be guilty of these types of practices and it is a very important part of the trader set up process to find a reliable broker.
“Luck” in trading has been the topic of many threads here, and no doubt will continue to be. No doubt, luck is a useful friend, but I think profitability is more likely to related to an effective assessment of probabilities combined with a suitable risk/reward management and exposure control. These, I do not believe, can be easily or optimally embedded in an automated system which is designed to expect markets always to react in the same way to the same input - to quote a famous president “that won’t happen”.
Well at least this makes a change from the usual claims of conspiracy amongst the large banks, who apparently just manipulate the markets to feed off all the retail - which, if true, would be the very opposite of a random market…
Yes, these guys do often make money, but that is their business. Our business is trading. If we don’t make money trading then that is our own fault. I pay my broker for a service. I could not access these markets without them. They designed my trading platform and give it to me for free. They provide me with a market spread that is equivalent to interbank rates. They provide me with leverage to effectively trade an amount that is larger size than I actually have in my bank account. I am happy to pay a reasonable amount for all this and I don’t consider it a rip off.
Again, of course, we all know there are cowboys out there selling garbage to the innocent. But, again, it is up to us to tread carefully and get our learning from reliable source. In this respect, as in many others in trading, it can be a lonely walk.
Even if this is true. It would still be possible to be profitable. For me, entering into a trade long or short isnt a matter of expecting the market to go up or down. The truth is i have no idea. Instead, i acknowledge the fact that i have no idea what the market is going to do. I see my trades as a low risk/high reward oppurtunity based on price action, s/r levels and market conditions
Market moves (considerably) only when news comes out.
I agree
Your broker will not quote you when market moves considerably. Your stops will be ignored and your money management strategy will be ruined. Of course, this does not happen when you backtest a trading strategy.
Find a good broker
You’ll be profitable only while you are lucky.
The harder and longer you work, the luckier you become
Don’t be fooled, the only guys making solid money in this market are trainers, brokers and companies selling trading bots (that work until you run out of luck).
There are succesful traders out there. Not many, but they exist
Nice post Manxx.
Although 4 years seems a long time it really isn’t when it comes to clawing your way through and out the other side of “trading hell”. It’s not only time you need but a continued obsessive drive to succeed when it doesn’t seem even remotely plausible.
The only thing I can offer by way of encouragement is my own experience. As I’ve mentioned previously my husband took almost 8 years…many long and difficult years of mistakes and useless, misleading and damaging advice, psychological self-sabotage and a long held fallacy of what is actually required (mathematically speaking) to come out ahead. The seemingly simple concept of accepting a trade as being one very small part of a much larger whole, and being able to sustain that acceptance through many many losses is an exceedingly difficult concept to master.
Was it all worth it? Ultimately, yes it was. Testament to the fact that it can be done …he taught me and now I am just starting to teach my daughter the very basics. A wild ride ahead methinks!
Being able to trade from home and, given enough time and patience, make it work, is an opportunity I think we now take for granted. How people perceive, grasp, utilise and persevere with “opportunity” is where the difference between success and failure can often lie.
Patience, patience, patience…and then when you think you have used up every ounce of patience you have…dig a little deeper and you will find a little more.
I can certainly concur with this. Although there is no set timescale for the retail trader’s apprentice period, it is certainly most often measured in years rather than months. And 4 years is not anything extreme or unusual at all, probably quite realistic in fact…
This interests me. We talk a lot about a trader’s problems and difficulties but rarely about how it affects other members of a trader’s family and friends.
So you were not a trader yourself during your husband’s 8 years of walking the financial “valley of death”. How did this affect you? How did you feel about it at the time and how did you understand what was going on? Did you have deep concerns at any time about your financial security or your husband’s health, etc? Did you sometimes wonder what he could possibly be doing just watching charts and occasionally scribbling things down and sometimes suddenly bursting into a bubbling hysteria of excitement and mumbling incoherent terms and exclamations? Did you learn a lot of new swear words that were previously unknown to you? Did you ever get annoyed when he was clearly miles away in his own thoughts as you were explaining something very important to him?
The pressures of trading are not always entirely our own problem! My wife has gotten used to it already ages ago and just occasionally mutters as she passes by, “How are the curves today?”
Yes, it’s a random market! But professional Forex traders are able to understand the hidden meaning of market movements! So, they are trading with a high probability ratio! But, there is no connection with luck! If you opened a trade according to the market flow, then definitely you’ll get here TP otherwise not! By the way, You have spent here almost 4 years but till now you are struggling that means your learning process was wrong!
Possibly on a minute by minute basis the market is random. And it might be impossible to gauge where price will end up in 10 minutes’ time nor how how and how low it went on the journey there. But trading forex on a 10-minute time-frame is a game for only the top rank of skilled traders.
Look at market behaviour on a multi-day basis however and you find that price action is clearly not random and can be very much more easily a route to profitable trades.
I have to see forex day-trading as the equivalent of base-jumping. A great thrill when you land OK: but not a sport that generates minor injuries.
It’s been 4 years, but been hearing the same stuff from my first month. You can see things more clear in bigger timeframes, and it will not seem so random. The only difference between long term and short term strategies, is the time it’s gonna take for you too run out of luck. I will talk more on this sometime.
Another big one is people talking about risk reward ratio. They say, if your risk reward is 4 to 1, you only need to be right once every 4 trades, and you will still be profitable. Guys, seriously? Do the math, it’s all about statistics.
If your risk reward is 4 to 1, statistically on the long term your profit will be zero; actually negative, as you are paying either spreads or comissions. If your Stop loss is 10 pips away, and your take profit if 40 pips away, it’s 4 times more probable that the trade hits the SL.
So, what people try to do? Find an edge?, find a market situation where it’s more probable that the market direction favours you? You cannot do this in a random market. Actually, you’re right, it’s not exactly random, only because we can predict that the market will move (very probably) when news comes out. But that’s it, you cannot “probably” guess the direction of the move. So at the end, it might not be literally random, but I will correct myself:
This market behaves like a random market.
Let’s talk more about finding an edge. What people will try is technical analysis, fundamental or a combination of both. Of course, those who use fundamentals, will tell you that you cannot program a bot. Why not?, I can tell my bot not to trade when news are coming (there are economic calendars), and I can stop them at any time. And about managing a trade, I can tell my bot what rules I use to manage my trade. So don’t tell me I cannot do bots. Actually, bots will do better than humans. Face it, it’s 2017 already.
Let me share something for fundamental analysts. I would like to get your opinion on random behaviours. No need to go very far. This time, It’s oriented to short term traders. I will post long term examples sometime. For now just let me tell that probably you will run out of luck when something like Q4 2008 eurusd happens again, and the thuth is you cannot predict when it will happen, so it will catch you by surprise.
Back to short term:
Take a fundamental event, for example, “Mario Draghi speaks”. This is what happened the last 4 times (All examples EURUSD M15 Timeframe)
Each time, the behaviour is random. Fundamentals don’t give you a clue about what direction the market will go. It all depends on what people speculate, and the volume they put into the trades. So we go back to… will you be lucky? Until when?
For technicals, for the moment let me share this YouTube video:
I could add some more ideas, but much of what I’ve found is well explained here.
I wonder why this reminds me of those who proved that the bumble bee simply cannot fly - it is aerodynamically impossible. But the bees just quietly go on flying…
Thanks for the interesting perspective. You have a nice day, too!
Funny really, it all depends on whether you want to see the glass half empty or half full.
If you look at those examples that the OP provides, supposedly to prove his case, he states that they are all 15m TFs. Well, if one is a short-term intraday trader like me (and I think maybe you, too…) then this is a normal trading TF and one would normally wait until after the number or speech has occured before entering a trade - well, if we look at those charts they are nearly all followed by a directional move that lasts for a few hours or more- I mean, how long does a 15m trader normally wait before joining in!! If he going to wait an hour or two before making up his mind then I would agree that the chances of making a profit are pretty well zero - but not because of any curious random-like properties of the market’s movements…
and as for programming a bot, well I think that has been covered already…
Absolutely! if only more people would realise that it demands a lot more than a broker, a platform and a set of lines.
…But the fact that so many fail is not the fault of the market. The fact that any market moves in erratic and illogical steps as it responds to the real and large forces that are impinging on it is a major challenge and it demands skill and experience and understanding to survive in it - just like riding the rapids in a canoe, blindfold and in the dark, if you like!
But in the final analysis, people do succeed, companies do succeed, banks do succeed…but others do not, and it is easier to blame the supposed randomess of price action rather than admit personal failure to learn from experience…and then to preach to the world that because I didn’t make it then no one else can either…
You PMH, are different, you have learnt a lot, picked yourself up and learned and tried something different,that is why you will get there.
But there are others that seem to reflect the Einstein quote about doing the same thing over and over again and expecting a different result…
I do understand what you are saying and it is a very relevant issue. I am not sure if I can explain what I want to suggest here, but I will try!!!
What we are talking about are really just different levels of risk exposure - but it is actually more than just that - it is also how visible and influential the changes in profit/loss are on our “investments”.
I would agree that in theory a long-term position in stocks is maybe a more linear and comfortable form of investment, but in practice is not necessarily so. As you mention, there is access to company info and management, but you never really know how competitive a particular company is in its field or how it is being managed financially…and there are thousands of different companies to invest in! Is it not just as demanding to research thousands of companies as it is to study one currency pair?
Surely it is precisely for this reason that investors will choose to invest in a fund that does the research for them and through which an investor can construct his portfolio in terms of risk by country, industry, company classification and so on. One can choose a mix of sectors, or values (e.g. environmental, ethical grounds) or pretty much anything else these days…and then you can go one step further and take a view on a stock market in total and invest in an index!..and here we are back at the beginning with a leveraged position in a generalised instrument without identity or specific management or any of the other negatives of currency trading.
Basically, we are swapping one kind of risk for another.
But that aside, I think the real reason why forex seems a bigger risk is because it is traded on leverage and without the actual capital that the position actually represents. This makes the profit/loss changes highly visible and extremely emotive. If, for example, you invest USD100,000 in a share portfolio and at the end of the week its value has dropped by USD100 you’re not likely to even shrug your shoulders because you know that it will “come right” in time and, relative to the investment, it is not a significant amount.
But if you take a 1 lot EURUSD 100,000 position with a margin account containing USD500 of your life savings and it moves USD100 against you then it is a VERY different situation and a very serious threat to your capital. I believe it is exactly this high profile perception of the profit/loss in leveraged forex trading that creates the situation that it is hugely risky. We are comparing losses relative to our margin account equity and not relative to the actual, theoretical, equivalent amount invested in the trade.
To put it into perspective, I may have, say, USD 10,000 in my margin account, which is far more than I need to cover my positions. When the EURUSD rate was around 1.0400 I might think, “why not withdraw some of my margin here while the dollar is so strong”…and now when it is around 1.1200 I might think, “hey, why not put some back into my account here”. The point is there is no serious analysis here nor any real concern whether I hit the top or bottom. The theoretical EUR value of my USD account fluctuates all the time anyway . but the move in trading terms would have been hugely successful! It is just how we see it and how big the position is relative to our actual cash.
The only reason why we trade on margin is because we can make a disproportionately large profit relative to our meagre capital based on a hypothetical investment of money that we do not actually possess. But the risk of loss is equal and opposite to the potential for gain. Therefore loss is disproportionately painful with respect to our actual capital.
I don’t know if this really makes any sense at all, but food for thought, anyway…!
Just a few of questions for OP, who is not crazy to believe these things btw.
Are all markets random or is it just FX?
Have you been doing this full-time for 4 years or as a hobby?
What have you done during those 4 years? What have you studied?
For what it’s worth here are my current beliefs.
-There is a lot of noise in FX markets, but there is some signal too.
-Profitable traders are either the shyest people in the world (about proving their success) or they don’t exist
-As OP hinted, the biggest challenge in trading FX is dealing with retail FX brokerages, most of which are not trustworthy. If you’re an American, the FIFO rules compound this difficulty.
I cannot tell about other markets, as I have not made deep analysis as I have done for Forex. For Forex I can tell that due to the random behaviour, any type of system applied will have a negative expectancy on the long term, statistically speaking.
Obviusly I cannot dedicate full time to a non profitable job. However, I have invested many hours during this 4 years. At least the equivalent of 1 year full time.
It’s a lot of topics, but practically I’ve gone through all general knowledge that can be applied to this market:
All type of indicators and Oscillators, Fibs, Elliot Waves and patterns, Price Action, fundamental analysis, money management.
I have loaded historical data in Databases, and loaded a ton of indicators. Studied combinations of indicators, pattern detection to profile possible “edges”. Some of my own ideas, and also ideas by others, like 3 ducks, HGI. You backtest any pure technical system, and you can will blow your account sooner or later. Filter trades with some fundamentals, you’ll take a bit more to blow up, becase filter = less trades. Combine systems, when you add up… you blow.!
Sorry guys, I know 1% of traders are bumble bees, and we are lucky to have at least 5 of them replying to this post. How probable was that!! :35:
What makes you think fx markets are random? Does this coincide that it means profitable traders don’t exist? This comment about randomness I see a lot here, however I fail to see how this is the case. There is a reason why trading is a game of probabilities…
Coz believe me, I’ve really tried making this work for me, but no luck so far!!
