Hi ! I’m a new Forex Student , and i have a question :
Why does a loss occur in Forex ? can’t we just buy at a price and wait for it to go up and then sell or vice versa , and therefore make a profit ? Why we need good strategies that anticipate the price movements and all the other stuff ? Thanks
Because buying at a (random) price might not be followed by a price rise. A good strategy gives you a better than 50/50 chance that it will rise from where you bought.
Hi , Thanks for helping !
Still haven’t received a clear answer … If I bought at a random price … I will wait for it until it goes up then sell ? what’s the problem here ?
You could buy at a random price, yes. But the odds of price rising or falling would be 50/50. So price might fall. And then it might not rise to where you bought for 3 or 4 years. Or it might fall so far that your account is wiped out as price has fallen so far that your margin is all used up and the broker closes the position.
I suggest opening a demo account with a broker and trying out these ideas.
According to all the charts i saw , I didn’t notice a point where the price has fallen to a level and didn’t rise again … The problem is … I hear people loose in Forex trading and these questions didn’t leave my mind … even considering the idea that you brought . if the price has fallen to a point where it will not rise again … i will keep the money that i bought and not sell it ? isn’t it my money ? Why the broker will close the position ? what position are you talking about ? Sorry for wasting your time … Thanks a lot
And thats exactly the usual fallacy of “strategies”.
What fallacy are you talking about ? Can you please clarify ?
If you bought at a random price and price fell a little, you could simply hold that position until price came back. If it did not come back in 50 years, you would still be holding that position. However, as trading is a business in which we hope to make a profit, what would you think of a business that had failed to make a profit every year in the last 50 years?
Almost every private retail forex trader will open a leveraged account. This means that if you put in £1000, the broker will treat it as an account worth up to 500 times your £1000. Without leverage, if you bought something for £1000 and it went up 1% in price, you would make only £10. with leverage of say 1:100, they will treat your £1000 as £100,000 and your potential profit on a 1% price rise will be £1000. However, that is also your potential loss of price falls 1%.
Do not trade until you have run a demo account with imaginary money.
Thanks for talking your time answering my question .
I’m seeking to really go deep in the forex basics , understand them , and then open a demo account , I’m really aware of that !
I have a live charting software running where i set 5 minutes to 15 minutes candles … Just observing and determining the patterns based on the strategies that i’m learning in a purchased course . just to let you know my situation …
When I observe the candles I’m able to see that the candles simply go up and down … but never to a point where they never gone up again … this is what driven me to question the need of a strategy and the concept of loss in trading ! i hope you understood what i meant ! Thanks again .
In every normal trading decision which is not based on any strategy ( gambling ) . there is 50/50 chance …
If the a 50 occurs which i’m able to make a profit . I will go for it , if not wait until it happens . thus , not loosing anything . in a day trading manner … I think ( with my beginner mind ) that if i bought at a certain price level, the price will certainly go up above the buying price … not immediately after the trading decision but it will happen ( from what i saw ) , if not today , tomorrow … if it took long like 2 or 3 days i will still wait even if it’s for making just a negligible profit … The essential is to not loose … what do you think ?
I think you should open a demo account and try. It will not be long before you understand clearly the reasons how and why losses occur. Bear in mind you’re looking at charts AFTER the fact and that’s just to begin with.
If you had bought GbpUsd in 1975, the exchange rate was 2.60. Go back a few more decades and it was 4.00.
Today it is around 1.30
How long are you prepared to wait for it to go back up?
Mate, you will soon learn that in Forex there’s a lot more to see than it appears to the eye. That’s why they say you need a lot of chart time to start “seeing” things.
You said above that you have looked at the 5 and 15 min timeframes to “see” if this type of strategy would work. And it does: short term.
A lot of people have already tried to trade without stop losses, just waiting for price to reverse and come to their entry level again and maybe close in profit. And it has worked. Short term. Some have even managed to “get away” with this strategy for months, showing a smooth climbing equity curve. But then they entered that one trade, or series of trades, that didn’t come back before their positions were margin called, erasing their profits of several months and more.
As Keynes said in the 1930s: “Markets can stay irrational longer than you can stay solvent.” This saying is still true today.
You asked why the broker can close your position. Let me ask you: would you sell your car to someone without him having the money to pay you? It’s the same thing in trading: if you don’t have enough money in your account to cover your losses, the broker closes your position automatically.
I give you the same advice as others: open a demo account and you’ll soon understand. But don’t dwell too much on such a strategy, it has already been tried before and it simply doesn’t work long term. Hope this helps.
“A picture is worth a thousand words”.
Here’s just some chart I found on Google for the GBPUSD from 2007 to 2010.
In blue you can see the places where you would have bought along the way and price didn’t come back at least until the end of 2010. In red you see the places where you would have sold and the same situation happened.
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The question is: Are you able to wait that long?
Or better: Are you solvent enough to wait that long?
In some cases you would still be waiting today (2019) for price to come back to your entry level. This means that you would have an open loss of maybe thousands of dollars. Can we sincerely say that would be a profitable strategy? Couldn’t another strategy yield you better results?
Cheers
The question which i asked may seem dump at the beginning but it deserved the opened discussion . I’m more convinced now than before about the need of a trading Strategy … I just wanted to say that I was pretty aware of the concept shown in the photo you posted , in the long run what i said is nothing but ignorance , My question was always targeting the short run ( 5 min to 15 min candles ) which you also said that it may work for several months but it will never be something that you can count on .
Thanks a lot , you can’t imagine how your answers clarified things for me !
Thanks for your participation , the question which i asked targeted the very short run ( 5 min to 15 min candles )
Yeah ! thanks a lot
Well; making one-two TP is very easy! But in a ong run, Forex is difficult! Besides, it looks easy although the reality is different! Only good skilled traders can make consistent profit! This is why, learning and building a good trading skill is very much essential.
Some well known experiments have been tried in the past in which groups of traders were forced to either buy or sell at a given point and then manage their risks so as to not lose money. In the short term, both groups made money. It is possible to take a random entry and not lose money in the very short term.
So this is not a stupid question. Can it be done? Actually, yes it can be done.
But the real question is should it be done? The whole question is pointless as you need to consider what is the most you can win and what the most you can lose?
The random entry loser loses everything in the account. That’s the end of trading.
The random entry winner wins what they want to win. Which might be 20%, or maybe 50%, maybe even 100%. Wherever you decide you will exit, although the potential loss is of everything, your potential gains are definitely not infinite. Bearing in mind that if you make 50% of unrealised gains on your account and do not bank them, they could disappear and become a 100% loss. And what then? Then you have to enter again at a random price and now you’re back to square 1, from where you are either going to make a bit of money or lose everything. So what’s the point? You might as well put your money on 17 on the roulette wheel.
Nickpeterson1, I’ll give you a good example of an experience I just had.
Nov. 30th, 2018 I opened a demo account and opened a long position of 10,100 units of AUDUSD, then I completely forgot about the account up until just last week. Over those 7 months the price went consistently down. By the time I remembered I had that account it was sitting at -$498.00, so I closed it immediately as it could be many years before it sees 0.73026 again, lol. Not only that, but brokers charge a daily financing fee (depending on the difference between the 2 countries yielding interest rates.) and I was being charged $0.40-0.50 EVERY DAY for holding that open position. That added up to roughly $103.00.
So if you’re going to enter a position and risk riding it for months, make sure the monthly trend is in your favor and open it as a carry trade where the interest rate of the currency you’re selling is higher than the one you’re buying. For example, if I had a short on AUDUSD instead of a long then I’m selling AUD and buying USD so my broker would have been paying me the $0.50 per day, and my account would have been $600 in the green instead of in the red.
I apologize if I’ve complicated things further for you, but there are a so many important things you need to understand if you want to succeed in trading. That 50% chance you are talking about is actually more like a 10% chance in this business.