Forex for a trader
Forex is a losing game

Forex is a losing gameForex is a losing game. My friend Peter just blew his account. After spending $15,000 on Forex courses, $10,000 on coaching, and losing $5,000 to a scam broker (InvesttechFX) – he was ready to call it quits. After all of that, he decided to give it one last try. He bought an Expert Advisor (EA, also known as a trading robot). After 6 months, boom… his trading account was gone – again . “I am just stupid! Bloody stupid. ” he told me. However, Peter didn’t understand that it wasn’t his fault . He wasn’t “stupid”. He was being harsh on himself. It wasn’t his fault for believing marketers and people with their “track records”, MyFXBook results, and hundreds of testimonials. It is hard to resist.

Upon closer inspection though, it was obvious to me that this would never have worked. Do you really think Warren Buffet relies on MyFXBook or a MetaTrader 4 account to make his buying decisions? Do you think that anybody in the City of London or Wall Street make trading decisions based on that? I do have an unfair advantage though. I spent 23 years on Wall Street trading wealthy client accounts. The last 13 years have been spent trading for myself. During that time I have seen a number of miracles happen. One of my biggest wins early in my trading career was a trade in 1982. I started with a paltry $8,000 to my name and I used it to buy silver on the futures exchanges.

As it turns out my analysis was spot on, and I ended up running my $8,000 account to a little over $280,000 in only 30 days. Since that time I have modified my trading strategy – slightly . After 120,000 trades, 1,200 trading accounts, and 8 Wall Street Firms – I am going to give you an exact guide to walking away with 4 additional winning trades per month and avoid losing your shirt – like Peter did (I’ll tell you what happened to him in a minute). Before you read this article you must agree to the following statements: There’s no magic pill. The markets are full of sharks and they will eat you alive. You need to stick to simple and sensible rules. The Forex systems and robots churned out by internet marketer’s are laughable. – especially if you think that’s how they make money on Wall Street. And trust me, they DO make tons of money. Forget about making 20% per month.

That’s how poor people think. I’ll let you know exactly how much you can actually make later in this article. Now, if you agree with all of those statements then I salute you. If you disagree with any of them, then close this page right now. Still here? Good… You are part of a small group of people who can separate reality from outright dreams and lies. And for that reason you will understand the words in this article better than anyone. I don’t have time for ‘internet traders’, the ‘Forex forums’, or any other breeding ground for newbies who pretend they really know how the markets work – and neither should you. This article is going to be simple. I am going to show you how to get 4 – yes, just 4 – additional winning trades every month. Don’t be fooled by the goofy EA developers and internet marketers out there. Having 4 profitable trades per month is more than enough to push you into the big boys club. You can make more, but my aim is to get you started with something consistent.

Once you’ve got that mastered you can increase your output. Why you won’t make a dime from the information contained in this article. Most people reading this won’t make a single dollar. Not because the content sucks – I believe it is some of the best trading tips in the world. It is because people are lazy and don’t implement what they learn. It is because people lose their shit and take too much risk. And it is because you might not be able to handle my style. My past results really are no indication of you making any money whatsoever. You might simply not have what it takes. However, there are a small percentage of people who do. And by following the rules you might be one of them. There are no guarantees.

So read carefully and make sure you examine every word on this page as if your life depends on it. Because it might just change it forever – if you have what it takes. #1. The last opportunity for major profits in the Forex market. Have you ever been stopped out of the trade, just for it to change direction immediately? Do you ever feel like every decision you make is the wrong one? There is this big lie out there that hundreds of thousands of Forex traders believe. And you may have believed this too at one point. “The Forex market is the most liquid market in the world and therefore it cannot be manipulated “. That is plain wrong. Governments have been cracking down on big banks because of their manipulation of a whole host of markets. Check out this article on the BBC: Have a look at this chart they supplied: Have you ever been knocked out of a trade that just seemed totally random? Well, chances are somebody rigged it. And chances are… you didn’t confirm your trade with a “2-pattern overlay”. More on that in a little bit. You and I are small fish who are competing with much MUCH bigger sharks. Sharks who know the waters better than you do. I used to swim with them.

Merrill Lynch was only one of 8 companies I worked for on Wall Street. They did NOT take prisoners. There are entire teams who’s job it is to cheat the system. And those are some of the brightest minds in the world from the best universities in the world. You have to accept that you cannot beat them. That’s why, what I’m about to reveal, is the very last opportunity to profit in the Forex markets. Forget scraping a few pips off the charts. Forget taking daily pivot trades, or “snipers”, or FAPTurbos, or whatever else these idiots are selling these days. You have to stick to simple daily trades that unfold over a period of days, weeks, and sometimes months. By riding the wave on a boat, you’ll be safe from the sharks on Wall Street. #2. How to dominate a currency with profitable trades. That’s a lie. You can never ‘dominate’ a market. That kind of thinking will get your account murdered.

However, you can put the odds severely in your favor by doing one thing. You can use a simple “2-pattern overlay” before entering a trade. I’ve been using this since the 80s and it still works better than anything. One million dollar client at EF Hutton & Co (another Wall Street company) dubbed me the “2-pattern wizard”. Every time I used it he knew he was about to make enough cash to buy another house. All you do is look for a minimum of two chart patterns to “confirm the trade”. Now, that doesn’t mean you confirm an entry. You simply confirm that you potentially want to take a trade. Here’s an example from one of my trades: I saw a triple “core support bounce”, and then a simple overhead resistance.

(If you don’t know how to spot price patterns then don’t worry… I’ll get to that). DON’T jump into the trade just yet – it isn’t that easy. You still have to know when to enter. I use a very specific ‘trigger’ that usually means the market is coiled like a spring, ready to burst in the right direction. Keep reading and you’ll learn all about it. #3. Use this simple trigger. Most newbies would simply jump into the trade because they saw a “double bottom” or some other pattern. You and I know better. You have to wait for the market to form a coil. There are several different types of market “coils”, however the one I’m about to reveal is the easiest to spot and tends to give me better results. It is called an “inside day bar”. So, looking at the daily chart I would wait for this bar to form.

Here’s a real live example from a trade I took a while ago: Two inside day bars were the beginning of a nice coil. Here’s another example: #4. Have a tight stop loss and await the coming burst in movement. Remember that silver trade I told you about in the 1980s? It was my first big win. Even though I turned $8k into $280k the risk was minimal. I did that by scaling into a rocketing market. Despite what people say… NEVER do that. Not until you understand the true risks involved. It can take a heavy psychological impact on you. I once saw a guy at Commodities Corp (now a division of Goldman Sachs) throw his computer across the room because he leveraged his position by scaling in too much. Theres no need to do it. Simply stick with what I am about to reveal and you could walk away with a handful of winning trades each month.

Keep the initial stop loss tight, and then keep it loose… The initial stop loss is very tight. I anchor it close to the previous bar. If you’ve established the correct price action and trigger bar, you should see it shoot off in the right direction. Only 1 out of 2 trades tends to linger around. If they turn, then it means the trade is a dud and your stop loss will kick you out quickly. However, when it goes… it goes. Here’s an example of a good trade I took. I made a fat 5.2% in about one week. This example shows how it immediately jumped in my favor. That means I spotted a good coil. By the way… those are actual trades. My trading platform marks them with those little circled arrows. Here’s another example: EURGBP immediately jumped after a trigger coil for a 2.5% gain in just one day. I don’t usually exit trades in the same day, however, 2.5% is a lot of money in my world.

You don’t often see 2.5% days. If everyday was like that my account would grow by a billion every month. So when it happens… I take it. #5. Exiting the trade for a fat profit. This is how you get 4 additional winning trades. If you get the coil right. Your trade should shoot out of the block like Usain Bolt. This allows you to have a tight stop loss. It puts you in a great position to make huge gains with a tiny risk. If your stop loss was far away from your initial entry then your risk would be greater and you’ll have to reduce your position size. Therefore, I would recommend a hard and fast 3:1 risk reward ratio. If your stop loss is 35 pips away, your profit target will be 105 pips (three times the stop loss). Now, admittedly I use a way more complicated process for my exits. I could write an entire book on it. However, when I looked back at my last 300 trades, I noticed that if I used THIS exit strategy I would still have made a great return. It is simple and it takes psychology out of the equation.

I learned this while working at Bridgewater Associates (they manage about $170 billion) from a funny looking Irishman. Back in 20112012 I forgot this rule and I duly got slaughtered. There is a story inside of the book ‘Marketing Wizzards’. It talks about a great trader who locks himself in a room with no distractions. No windows. No TV. No Computer. He has his assistant bring him his chart-book without the instruments named. So he doesn’t know if he’s trading pork bellies or gold. He doesn’t care. All he cares about is the price and the fact that he has no distractions. It means he ‘never loses’. My rule gives me the same sort of piece of mind. Before I let you in on it you must know what I mean by ‘never’ lose.

When you lose a trade – you aren’t ‘losing’ . It is simply part of the process. It is the equivalent of a business expense. You will always lose trades. However, when you lose your mind and you don’t follow your own rules. That’s when you truly lose. So here are the exact rules you need to follow to NEVER lose, always stick to your rules, and always win in the long run. Do not share your trading results. I did once. And only once. It was a huge mistake. All of the sudden I was answerable to thousands of people who happen to stumble across my profile. This doesn’t work when you are a trader. I lost focus.

I kept fussing about whether a trade was a winner or a loser. I didn’t focus on whether it followed the rules or not. As long as you follow the rules… you are winning. When you don’t follow the rules – you are losing (even when you make a profit). Systems and routines are the only thing that make you profitable in the long run. It is the only thing that’ll protect you against the sharks. So whatever you do – don’t share you trading results. Not even with your husband or wife. It’ll put external pressures on you. Don’t even mention a winning trade or a losing trade. Simply tell them you’re winning because you followed the rules. #7. How to make $1m from trading.

Do you want to know the real secret? The one that most people ignore, because they don’t really take their trading seriously? Well, it is a system of recording and documenting your trades in detail. I call it a trade journal. Super original right? Every single time I am about to take a trade, I stop. I take a snapshot of the chart, I write out my analysis (the reason WHY), and then I enter the order. 90% of my orders are pending orders, which means they only enter when the market reaches a specific price. This is an example of three pages inside of my journal. By doing this with your trading you’ll be able to get a lot more focussed. When you look at the markets you will feel excited. You will get a rush of adrenaline. Stop. Take a deep breath and start recording the trade before it happens.

It gives you the breathing room you need to make rational decisions. It helps you to be a winner every time by following the rules. Seriously. Get my journal. It’ll show you how you should structure yours for maximum results. You’ll also get a better feel for the way I trade. #8. Past trading results on MyFXBook will drain your trading account. This is the biggest difference between the Wall Street traders and normal folk. On Wall Street – we know that past results don’t mean anything. They really are no indication of future performance. Even if the results are third party verified.

Think about it. How many times have you bought a system or a program based on their past results? And… how many times has it worked out? Now you have two choices. I should congratulate you. You’ve read the entire article. However, this is just the start. You now face two choices. Choice #1. Forget what I told you and keep doing what everybody else is doing. It is easier to follow the herd after all. Some of the things I talked about aren’t easy. Some of them are plain boring. Yet this is what it takes. And I think you know that, which is why you’ll probably go for… Choice #2. This is the choice smart Forex traders go for. You grit your teeth and follow the rules. So that you can finally break away from the ‘internet herd’ and actually start taking pride in being a trader. Don’t fall into the same trap as Peter. Be the person that “actually makes money”. How nice would that feel for a change? I’ll help you out by giving you my 21 Power Strategies without asking you for a dime.

Just let me know which email address I should send it. Forex: a waiting game. Trading in the forex market can be many things; frustrating, rewarding, soul-destroying, joy-giving, but there is one truth that all traders must understand if they are to profit: Patience is key. There is no doubt that patience is a winning attribute for forex traders and any trader that you ask will tell you that you need to wait for the profits to come. If you are new to forex, then you need to wait for your knowledge and skill to get up to speed. And if you are not new to the game, you will know that losing periods must be waited out, in order for the good times to come back around. A Guest Post by FXTM. Why you need patience. To understand why patience is such an important virtue in forex, let us consider some examples. First, consider a trader who has a trading strategy that allows him to take, on average, 30 pips a day from 2 trades in the forex markets. The odds sound good, but when we discover that his actual winning ratio is quite low (only 30%) it becomes clear that most of his profits actually come from relatively few trades. Thus, his average may be high, but his winning percentage means he will likely go long periods without winning any trades. In fact, on occasion he may go a week, two weeks or even more without making any money. On even rarer occasions, he may even go a month without taking home any profits. As you can see, patience is clearly required in this situation to wait out the losing periods. The trader knows that if he keeps plugging away his endeavours will eventually turn into cash, but it is all too easy to give up when time are tough. Let us now look at a second scenario.

Consider a trader who, one morning, puts a trade on his favourite currency pair after spotting one of his best ever trading setups. Now let’s assume that the currency pair starts going the wrong way and the trader starts to lose money. Somewhat unbelievably, the trade carries on in this fashion and before he knows it, the trading session is near the end of the day and his position is still showing a loss. He’s quite simply had enough by now and closes up shop for the day so he can have some dinner and go to bed. Of course, you probably know what is coming next, he has just made a big mistake. Moments after he closes his position, the currency spikes up as the US markets open and a news flash comes out. In a matter of seconds, the trade that the trader just closed for a loss, would now be showing big profits if only he had waited a couple of minutes more. That is one of the key lessons to be learnt from forex trading. It can often take hours, days, or weeks, to wait for a move that happens in just seconds. Forex Trading is a Numbers Game. As a trader, you must realize that anything can happen in the markets. Without accepting this very essential fact, you will NEVER EVER become consistently profitable. I know, I know, the idea just sounds silly! How can you, as a trader, become consistently profitable from a market that has uncertain outcomes? It’s just not possible! WRONG! In trading and in life, we have what are called PROBABILITIES .

Casinos are profitable year, after year, after year, despite having a business where the outcome of each card laid down, dice roll, or slot pull is unknown each and every time. They understand the concept of probabilities and create games that put the odds in their favor–in other words, “the house advantage.” While it is true that there will be some lucky ones that will win and walk away with millions of dollars, casinos know that if they get a large enough sample size, there will be more losing patrons than winners in the end. Let’s take baccarat, a popular card game for high rollers, for example. The game is fairly simple. Cards are dealt to a “banker” and a “player,” and all you have to do is place a bet on either one. Since you have equal access to both the banker and the player (you can even bet on a TIE if you want), it would seem like you essentially have a 50% chance of winning. But in reality, that’s not the case. By tweaking the rules, like charging a very small commission or reducing the payout if the banker wins with a certain number, the odds are turned slightly in favor of the house. It might be a very tiny advantage, anywhere from 1% to 5%, but it’s enough for the house to eventually come out on top when enough games are played. You have to remember that what differentiates trading from gambling is being able to bend the odds in your favor. That is why, as a trader, your mindset should be akin to that of the CASINO and NOT the gambler, who merely focuses on one event (or trade) at a time. To become consistently profitable, you have to trade like the HOUSE and play the advantage over a series of outcomes. How exactly can you tilt the odds in your favor? You can do this in a couple of ways.

First, you need to learn the market behaviors, patterns, and tendencies that could be recognized in the future and turned into a trading opportunities. This comes from reviewing price action against a framework (support and resistance, mechanical indicators, economic events, etc.), recording your observations, and then devising statistics to keep track of the different kinds of patterns or setups. This is where keeping a trade journal becomes a necessity. Using the data from your journal, you can focus on the setups that have had higher probabilities of winning, rather than those setups that tend to lose. Secondly, you need solid risk management. You can tilt the odds of long term success in your favor even more if you limit yourself to setting up or taking trades that have an attractive risk-management ratio (ie. average bigger wins than losses). The better the reward-to-risk ratio, the less often you need to win a trade. For instance, if you notice that you are good in spotting double top formations and trading them, then you can devise a trading system that focuses on finding setups based on double top chart patterns. If you are able take a large enough number of these trades, and your winners are larger than your losers, then you’ll eventually end up profitable over the long run! And lastly, you can look to other traders in addition to your own analysis. The web is loaded with free economic and technical analysis content. By getting a second opinion, you make sure that you don’t fall into the “confirmation bias” trap. Of course, these aren’t the only ways to tilt the odds in your favor. But you should always remember that you don’t have to predict exactly where the market will go; you just have to figure out where price will likely go and make the best of it if the trade goes your way. Why Do Many Forex Traders Lose Money? Here is the Number 1 Mistake.

by David Rodriguez , Quantitative Strategist. Big data analysis, algorithmic trading, and retail trader sentiment. Your Forecast Is Headed to Your Inbox. But don't just read our analysis - put it to the rest. Your forecast comes with a free demo account from our provider, IG, so you can try out trading with zero risk. Your demo is preloaded with ?10,000 virtual funds , which you can use to trade over 10,000 live global markets. We'll email you login details shortly. You are subscribed to David Rodriguez. You can manage you subscriptions by following the link in the footer of each email you will receive. An error occurred submitting your form. Please try again later. We look through 43 million real trades to measure trader performance Majority of trades are successful and yet traders are losing Here is what we believe to be the number one mistake FX traders make.

W hy do major currency moves bring increased trader losses? To find out, the DailyFX research team has looked through over 40 million real trades placed via a major FX broker's trading platforms. In this article , we look at the biggest mistake that forex traders make, and a way to trade appropriately . Why Does the Average Forex Trader Lose Money? The average forex trader loses money, which is in itself a very discouraging fact. But why? Put simply, human psychology makes trading difficult. We looked at over 43 million real trades placed on a major FX broker's trading servers from Q2, 2014 – Q1, 2015 and came to some very interesting conclusions. The first is encouraging: traders make money most of the time as over 50% of trades are closed out at a gain. Percent of All Trades Closed Out at a Gain and Loss per Currency Pair. Data source: Derived from data from a major FX broker* across 15 most traded currency pairs from 312014 to 3312015. The above chart shows results of over 43 million trades conducted by these traders worldwide from Q2, 2014 through Q1, 2015 across the 15 most popular currency pairs. The blue bar shows the percentage of trades that ended with a profit for the trader. Red shows the percentage of trades that ended in loss. For example, the Euro saw an impressive 61% of all trades closed out at a gain.

And indeed every single one of these instruments saw the majority of traders turned a profit more than 50 percent of the time. If traders were right more than half of the time, why did most lose money? Average ProfitLoss per Winning and Losing Trades per Currency Pair. Data source: Derived from data from a major FX broker* across 15 most traded currency pairs from 312014 to 3312015. The above chart says it all. In blue, it shows the average number of pips traders earned on profitable trades. In red, it shows the average number of pips lost in losing trades. We can now clearly see why traders lose money despite being right more than half the time. They lose more money on their losing trades than they make on their winning trades . Let’s use EURUSD as an example. We see that EURUSD trades were closed out at a profit 61% of the time, but the average losing trade was worth 83 pips while the average winner was only 48 pips. Traders were correct more than half the time, but they lost over 70% more on their losing trades as they won on winning trades. The track record for the volatile GBPUSD pair was even worse.

Traders captured profits on 59% of all GBPUSD trades. Yet they overall lost money as they turned an average 43 pip profit on each winner and lost 83 pips on losing trades. What gives? Identifying that there is a problem is important in itself, but we’ll need to understand the reasons behind it in order to look for a solution. Cut Losses, Let Profits Run – Why is this So Difficult to Do? In our study we saw that traders were very good at identifying profitable trading opportunities--closing trades out at a profit over 50 percent of the time. They utlimately lost, however, as the average loss far outweighed the gain. Open nearly any book on trading and the advice is the same: cut your losses early and let your profits run. When your trade goes against you, close it out . Take the small loss and then try again later, if appropriate. It is better to take a small loss early than a big loss later. If a trade is in your favor, let it run . It is often tempting to close out at a small gain in order to protect profits, but oftentimes we see that patience can result in greater gains. But if the solution is so simple, why is the issue so common? The simple answer: human nature.

In fact this is not at all limited to trading. To further illustrate the point we draw on significant findings in psychology. A Simple Wager – Understanding Human Behavior Towards Winning and Losing. What if I offered you a simple wager on a coin flip? You have two choices. Choice A means you have a 50% chance of winning 1000 dollars and 50% chance of winning nothing. Choice B is a flat 450 point gain. Which would you choose? 50% chance to Win 1000. 50% chance to Win 0. Expect to win $500 over time. Over time it makes sense to take Choice A—the expected gain of $500 is greater than the fixed $450. Yet many studies have shown that most people will consistently choose Choice B. Let’s flip the wager and run it again.

50% chance to Lose 1000. 50% chance to Lose 0. Expect to lose $500 over time. In this case we can expect to lose less money via Choice B, but in fact studies have shown that the majority of people will pick choice A every single time. Here we see the issue. Most people avoid risk when it comes to taking profits but then actively seek it if it means avoiding a loss. Why? Losses Hurt Psychologically far more than Gains Give Pleasure – Prospect Theory. Nobel prize-winning clinical psychologist Daniel Kahneman based on his research on decision making. His work wasn’t on trading per se but clear implications for trade management and is quite relevant to FX trading. His study on Prospect Theory attempted to model and predict choices people would make between scenarios involving known risks and rewards. The findings showed something remarkably simple yet profound: most people took more pain from losses than pleasure from gains . It feels “good enough” to make $450 versus $500 , but accepting a $500 loss hurts too much and many are willing to gamble that the trade turns around. This doesn’t make any sense from a trading perspective—50 0 dollars lost are equivalent to 50 0 dollars gained; one is not worth more than the other. Why should we then act so differently? Prospect Theory: Losses Typically Hurt Far More than Gains Give Pleasure. Taking a purely rational approach to markets means treating a 50 point gain as morally equivalent to a 50 point loss.

Unfortunately our data on real trader behavior suggests that the majority can’t do this. We need to think more systematically to improve our chances at success. Avoid the Common Pitfall. Avoiding the loss-making problem described above is very simple in theory: gain more in each winning trade than you give back in each losing trade. But how might we do it concretely? When trading, always follow one simple rule: always seek a bigger reward than the loss you are risking. This is a valuable piece of advice that can be found in almost every trading book. Typically, this is called a “ rewardrisk ratio ”. If you risk losing the same number of pips as you hope to gain, then your rewardrisk ratio is 1-to-1 (also written 1:1). If you target a profit of 80 pips with a risk of 40 pips, then you have a 2:1 rewardrisk ratio. If you follow this simple rule, you can be right on the direction of only half of your trades and still make money because you will earn more profits on your winning trades than losses on your losing trades. What ratio should you use? It depends on the type of trade you are making. We recommend to always use a minimum 1:1 ratio .

That way, if you are right only half the time, you will at least break even. Certain strategies and trading techniques tend to produce high winning percentages as we saw with real trader data. If this is the case, it is possible to use a lower rewardrisk ratio—such as between 1:1 and 2:1. For lower probability trading, a higher rewardrisk ratio is recommended, such as 2:1, 3:1, or even 4:1. Remember, the higher the rewardrisk ratio you choose, the less often you need to correctly predict market direction in order to make money trading. We will discuss different trading techniques in further detail in subsequent installments of this series. Stick to Your Plan: Use Stops and Limits. Once you have a trading plan that uses a proper rewardrisk ratio, the next challenge is to stick to the plan. Remember, it is natural for humans to want to hold on to losses and take profits early, but it makes for bad trading. We must overcome this natural tendency and remove our emotions from trading. The best way to do this is to set up your trade with Stop-Loss and Limit orders from the beginning . This will allow you to use the proper rewardrisk ratio (1:1 or higher) from the outset, and to stick to it. Once you set them, don’t touch them (One exception: you can move your stop in your favor to lock in profits as the market moves in your favor). Managing your risk in this way is a part of what many traders call “money management” . Many of the most successful forex traders are right about the market’s direction less than half the time.

Since they practice good money management, they cut their losses quickly and let their profits run, so they are still profitable in their overall trading. Does Using 1:1 Reward to Risk Really Work? Our data certainly suggest it does. We use our data on our top 15 currency pairs to determine which trader accounts closed their Average Gain at least as large as their Average Loss—or a minimum Reward:Risk of 1:1. Were traders ultimately profitable if they stuck to this rule? Past performance is not indicative of future results, but the results certainly support it. Our data shows that 53 percent of all accounts which operated on at least a 1:1 Reward to Risk ratio turned a net-profit in our 12-month sample period. Those under 1:1? A mere 17 percent. T raders who adhered to this rule were 3 times more likely to turn a profit over the course of these 12 months—a substantial difference. Data source: Derived from data from a major FX broker* across 15 most traded currency pairs from 312014 to 3312015. Game Plan: What Strategy Can I Use? Trade forex with stops and limits set to a riskreward ratio of 1:1 or higher. Whenever you place a trade, make sure that you use a stop-loss order. Always make sure that your profit target is at least as far away from your entry price as your stop-loss is. You can certainly set your price target higher, and probably should aim for at least 1:1 regardless of strategy, potentially 2:1 or more in certain circumstances. Then you can choose the market direction correctly only half the time and still make money in your account. The actual distance you place your stops and limits will depend on the conditions in the market at the time, such as volatility, currency pair, and where you see support and resistance. You can apply the same rewardrisk ratio to any trade.

If you have a stop level 40 pips away from entry, you should have a profit target 40 pips or more away. If you have a stop level 500 pips away, your profit target should be at least 500 pips away. We will use this as a basis for further study on real trader behavior as we look to uncover the traits of successful traders. *Data is drawn from FXCM Inc. accounts excluding Eligible Contract Participants, Clearing Accounts, Hong Kong, and Japan subsidiaries from 312014 to 3312015. View the next articles in the Traits of Successful Series: The Traits of Successful Traders. This article is a part of our Traits of Successful Traders series. Over the past several months, The DailyFX Research team has been closely studying the trading trends of traders via a major FX broker. We have gone through an enormous number of statistics and anonymized trading records in order to answer one question: “What separates successful traders from unsuccessful traders?”. We have been using this unique resource to distill some of the “best practices” that successful traders follow, such as the best time of day, appropriate use of leverage, the best currency pairs, and more. Stay tuned for the next article in the Traits of Successful Traders Series. Analysis prepared and written by David Rodriguez, Quantitative Strategist for DailyFX. com. Sign up to David’s e-mail distribution list to receive future e-mail updates on the Traits of Successful Traders series and other reports. Contact and follow David via Twitter: twitter. comDRodriguezFX. DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

Frequent Retail Forex Trading is a Losing Negative-Sum Game. Based on a simulation of 20,000 random longshort systems trading EURUSD using daily data, the percentage of winners turns out to be a number statistically indistinguishable from 0 even in the presence of 1:1 leverage and when spread and slippage are in the range of 2 to 3 pips. The situation with intraday trading is a lot worse. Based on 1-min EURUSD data in a 5-year period, any amount of spread or slippage results in a 100% failure rate. I know this study may be boring to many experienced traders but the statistics I have generated are quite interesting. I always suspected that retail forex trading is a negative-sum game with a very high failure rate but not to the extent the data I have generated indicate. The results of this study are simply stunning. Daily trading example (swing or position trading) Daily EURUSD data (bid prices) from 01022001 to 10252013. Simulation of 20,000 random longshort systems: If heads, then buy at the close and reverse when tails show up. Starting capital: $100K, one standard lot per position (essentially no leverage.) Case 1: 0 pips spread and slippage. The above graph is a frequency distribution of the net total return of the random systems of the simulation (100 x net profitstarting capital). The spike at the far left of the graph is near a -100% return, corresponding to a situation when the equity drops below the required margin ($2k in this case for 50:1 leverage on margin) or an account faces liquidation. The statistics confirm the zero-sum game nature of the forex market. The mean return is close to 0% with a stdev close to 50% (the exact figures are not important). Half of the systems generated returns greater than 0. About 3% of systems were stopped out or liquidated.

But in this case there was no spread or slippage applied. Case 2: 1 pip spread and slippage. In actual retail trading, however, buy orders are usually filled at the ask price and sell orders at the bid. Thus, in an ideal situation there will be at least 1 pip fill spread for long positions. The average spread of some popular retail brokers for EURUSD is between 1 and 1.5 pips. Slippage must be added to that due to fast or volatile market conditions. Let us assume in the following case that spread+ slippage is only 1 pip on average per trade, long or short. The distribution of returns changes as follows: A higher peak may be seen at the left far side of the distribution of returns, meaning that when spread and slippage are added more systems are stopped out or liquidated. In addition, the mean return is now negative at -32% and stdev is 45%. This is now a negative-sum game with only about 35% of the random systems making a net profit. Case 3: 2 pips spread and slippage. This get worse, as expected, when spread and slippage are increased to 2 pips per trade: In this case the mean return drops to -61%, stdev is about 38%, 33% of systems are liquidated and only about 8% make a net profit.

One may induce that an additional small increase in spread and slippage ruins all systems, which is the case actually and I will not show the distribution because it is just one bar at -100% of returns, i. e. total ruin for all systems. Starting capital considerations. Remember that the above simulations were for account leverage 1:1, i. e. an account of 100K was used to trade one standard lot of $100,000 face value. Things are of course a lot worse when the starting capital is smaller as that can be induced from the results. It turns out that for accounts smaller than $20K, the results are devastating even in the absence of spread and slippage. For example, for 10K starting capital and 0 spread and slippage, only 14% of systems end up with a net profit and about 86% of systems are stopped because equity drops below required margin. If 1 pip of spread and slippage is added in the case of a 10K starting capital, then 95% of systems are stopped and only 5% generate returns greater than 0. Needless to say what happens in slippage is increased. This result is compatible with the general conception that 95% of all small account retail forex traders lose money. This is an inescapable reality of this market. For starting capital of 50K and 1 pip spread and slippage, about 55% of systems are stopped out or liquidated and only 23% generate positive returns. The conclusion is that because of the zero-sum nature of forex trading (no wealth creation), a small amount of spread added to the bid price turns it into a negative-sum game even for 1:1 leverage. The losers are retail traders who trade frequently and the beneficiaries are the market makers.

Actually, this is a lucrative business for market makers because the statistics show it is highly biased in their favor, as a function of spreads and slippage. Intraday data example. Is the zero-sum game manifested also in the case of intraday data? Below is an example using 1-minute EURUSD prices in the period 052005 – 052010, for 100K starting capital (1:1 account leverage) and 0 commission and slippage. In this case, due to the sheer amount of intraday bars (close to 2 million) only 1,000 simulations are performed: The zero-sum game nature of forex is also confirmed in this case with close to 51% of random systems making a positive return and about 0.5% getting liquidated or stopped. The mean return is 1.58% and stdev is 35%. However, when spread and slippage of only 1 pip is added, a massive breakdown occurs with nearly all systems getting stopped or liquidated: In this case no systems have positive return and 100% of systems are ruined. And this was for 1:1 leverage and 1 standard lot per 100K of initial equity. No need to mention what happens with. – higher commission – wider spreads and larger slippage – small account size. The conclusion is that frequent intraday retail forex trading is a devastating negative-sum game for the totality of participants in the longer-term as soon as commission and slippage are introduced. Skill and luck play no role because making a profit is impossible in frequent trading under these conditions of trading friction. Now, someone could object to these findings claiming that the results of the study were based on simulations of random systems.

This is true but he must also realize that the market does not know whenever one buys or sells whether he used some algorithm, trading method, or discretion, or whether that was the outcome of a coin toss. That is irrelevant when our aim is to generate descriptive statistics about a market. Of course, there will always be cases that escape the boundaries of this simulation that was restricted to frequent retail trading, like for example infrequent trend-following or some other strategy based on skill or an algorithm. The message from this study is that small account retail forex traders, usually not well skilled and uninformed, have no chance to profit when there is friction involved, i. e. spreads and slippage. But I would not go as far as recommending people not to trade forex. Actually, trading forex with a mini account is a good way of paying tuition to learn how to trade and how economic releases impact prices. But forex is not an appropriate market in my opinion for the average retail tradee to make his fortune, the stock market is a better ground for that because it is not a zero-sum game at all times due to wealth-creation by listed firms. I have shown in another study that trading SPY has been very generous to gamblers with about 35% of them making a positive return in the presence of a low commission rate. Since the start of this year, the same kind of simulation shows that 20,000 longshort random systems in SPY for 10K starting capital fully invested at each position and 1 cent per share commission have the following net return distribution (nearly normal): The mean return is -1.25% and stdev is 10%. About 43% of systems made a profit, 14% made more than 10% and even about 2% made more than the buy and hold of 20.35%. This is a completely different story than in the forex case.

Commissions also impact win rates in the SPY case. For example, if commission is increased to 5 cents per share, then the percentage of systems with positive returns drops to about 25% and less than 1%, indistinguishable from 0, make more than buy and hold. Still this is a lot better than in forex trading. Disclosure: no relevant positions. Disclaimer. 12 Things I Learned By Being A Forex Trader. For the last 6 months, I’ve been a forex trader. I started this experience by curiosity, pretty hastily, to be honest, and ended it up abruptly (hopefully, you’ll realize why by reading this article). It was by far one of the most exhilarating, exciting, emotionally consuming and useful (in terms of lessons learned) episodes of my life. It was also one of the most difficult endeavors I ever started, in terms of energy and effort. What follows is a little list of all the things I learned during these 6 months. But before diving into it, a few introductory words, for those who have no idea what forex trading is in the first place. If you do have an idea about forex trading, you can safely skip the next two paragraphs. Forex Trading – A Primer. Forex means foreign exchange rates, and forex trading means buying or selling foreign currencies in pairs.

If public companies have shares that you can freely buy and sell on the market, then countries have currencies. That’s the easiest way to understand a currency: it’s the value of that country in pretty much the same way a share represents the value of a company. Now, a company share value is an expression of what people agree to pay for it, based on a number of criteria: company performance, brand power, rumors and so on. Consequently, a country currency is evaluated against another country currency, based upon a set of criteria too: the economical situation of both countries, political news, media manipulation and so on. In forex, you trade pairs, like selling EUR and getting USD, for instance. There are a few major pairs, EURUSD being one of them, then there are what they usually call “crosses”, or secondary pairs. In the majors, you find all the “big” players: GBP (british pound, also known as cable), JPY (the Yen), CHF (the Swiss franc) and so on. I only traded majors, crosses have usually a lower liquidity. Very simply put, forex trading means you can do only 2 things with these pairs: you can either buy some, or sell some. Using whatever capital you want to invest, that is. If you buy, then you expect the price of your pair to be bigger in a certain amount of time. You call that: “appreciation”. In other words, you expect to get a profit because you “predict” the price of your currency will be higher. If you sell, then you expect the price of your currency to drop.

You call this: “depreciation”. So basically, you will make a profit by “buying back” your pair when it will be cheaper then it was when you sold it. Each trade is usually called “position”. You open a position at a certain price, and set your attitude: if you buy, the jargon says you go “long”, if you sell, the jargon says you go “short” (hence the expression of “heavily shorting” a currency, meaning selling it because of its imminent depreciation). Once opened, each position will generate a profit or a loss, depending on your choice (long or short) and on how the market moves. Let’s say you opened a long position on EURUSD for 100$, which gave you 80 EUR. The market goes up, so now for your initial investment, you can get back 90 EUR. If you close your position (also known as “take profit”), you are 10 EUR richer. Suppose the market goes down and your position is now worth 70 EUR. If you close your position (also known as “stop loss” in this case) you’re 10 EUR shorter. You just lost 10 EUR. In a nutshell, that’s pretty much all there is to be known about forex trading, at least in order to understand the rest of the article,. Of course, these paragraphs are only scratching the surface (literally, the amount of information about forex is ginormous). There are a lot of other things to be known or learned, from technical analysis, (like candlestick charting, price actions, and so on), up to the trading mindset, (like avoiding revenge trades, sticking to a trading plan and so on). This post is not intended as resource for those who want to embrace forex trading (I’m not sure I want to write such a post now) but merely as a way to integrate this specific experience in my lifestyle. If you’re considering opening a trading account Fx Pro give some helpful information.

Forex Trading – The Activity. The first thing you need to know about actually trading forex is that this is a 5-days-in-a-row type of activity. It starts Monday at 0:00 and ends Friday at 23:59. During this time, you are almost 100% connected to the market. There are few financial hubs involved in the process, and the most important are (for those trading the majors, that is): London Stock Exchange, New York Exchange and Tokyo Exchange. Forex trading never really stops, so as the world goes round, the price will also be influenced by the specifics of the prevailing financial hubs. The most important part of the day (traditionally) is the overlapping time between London and New York, because you can allegedly get the highest liquidity, hence the most predictable models. There are 3 types of information which are influencing this market: technical analysis, fundamental analysis and news. Technical analysis tries to isolate recurrent or predictable patterns based on past behavior. Fundamental analysis tries to connect the major economical indicators to the value of the currency (from GDP variations, up to more obscure economical data). News are pretty much created by media and politics and these are the most “spiky” ones, meaning they are creating abrupt variations, making it easy to be caught with your pants off, so to speak. I traded mainly on technical analysis.

Meaning I tried to understand chart variations, different price actions and other representation models. Seemed the safest one for me. There are heavy advocates of the fundamental trading, as well as the news trading. In the end, it’s just a choice. Trading by technical analysis means also that I had to spend a lot of time studying charts and trying to create reliable predictions. In itself, this activity was very rewarding. I learned tremendously and many things I discovered during this process would have never entered my universe, without the risk taken to just dive in. For instance, I learned a lot about “harmonic patterns”, which are a way to graphically isolate (in various patterns, like “the butterfly pattern”, for instance) the behavior of the market. This stuff only can be applied in many areas of my life. Now, you have a bit of an understanding of what forex trading means. It’s time to move on to the actual lessons learned by being a forex trader. 1. You Can’t Control Your Life, But You Still Can Take Some Profit From It. Nobody can control the markets. But there are a few who are taking a profit from them. That’s one of the first “a-ha” moments any trader stumble upon. It’s also one of the hardest to grasp. In terms of personal development, that’s another way to say that life is not fair. It never was, of course.

But, in itself, that’s not even remotely a reason to stop taking profit from it. The illusion of control is one of the biggest lies our ego tells us. Just because we have a basic understanding of our universe, all of a sudden, we start pretending that we can control it. We start to believe that we can control everything in our lives. To some extent, we can. But the more we pretend we can control everything, the more the Universe is kicking our butts with unexpected events (in the form of what we usually call “crises”). The lesson: it’s not about controlling the wave, it’s about riding it. 2. Make And Use A “Stop Loss” In technical terms, that means you have to create a specific point at which your losses will be stopped, even if you are around. It’s the amount you’re committed to lose in that trade. Many beginners don’t use stops, and they usually burn their account within a few days (read: go broken). In terms of life that means: nothing is worth everything. If you commit to a certain situation, to a certain project, or career, that doesn’t mean you have to stay there forever. Make a short projection of what is the worst that may happen, in the worse scenario, and stick with your plan. If the shit really hits the fan, just leave. Don’t wait until you’re completely drained out. Or covered in shit (as I’ve been before, and not only once, because of my overcommitting approach). There’s another day tomorrow, you know that? 3. Pick And Stick With A “Take Profit” Point. In technical terms, it means you have to create a point in your position, where the potential profit will be automatically cashed in. If everything goes according to the plan, that is. Many beginners don’t use “take profit” points too, and that also results in an accelerated depletion of their accounts. They think the market will move in “their” direction for ever. Of course it doesn’t. What does this mean in real life?

It means you have to curb down your expectations. On anything. It’s good to have some expectations, just to be able to measure your efforts, but don’t hold your breath. Keep everything in perspective. And keep it transparent too. Don’t let other people believe you’re gonna be there forever (unless, of course, you do want to be there forever). Set a certain point in the future when you’ll be able to say: that’s all that I wanted to do with this jobrelationshipexperiment. Once you reached that point, cash in and move on. In terms of personal development, having “take profit” points it’s like saying: ok, I got my paycheck from this experience, now time to move on to the next one. 4. Control Your Emotions. Forex trading should be a very detached and cold activity. Alas, it isn’t. We’re human beings. Apart from the enormous amount of information that he has to process, a trader must also process and control his emotions: frustration, fear, greed, exhilaration.

Those who can master this skill are usually the winners in this field. What does it means in real life? It means that emotions, as useful as they are as a feedback mechanism, shouldn’t be used as the sole foundation for your actions. A little bit of control must be exerted continuously on emotions. Not on how they are formed, but on how they are shaping your real life actions. Imagine someone acting exclusively on emotions. If he’s frustrated, he yells, if he’s happy, he jumps around. No concern whatsoever for his environment, or for the consequences of these actions. Emotions are fundamental for our own psychological balance and a healthy expression of them is desired. But a life lived on emotions only, without any interest whatsoever for the consequences of our actions, that will be a very sad one. Closely related to the “take profit” lesson, but in a different way. Greed manifests in a trade when the trade is moving in the right direction, but the trader won’t cash in, waiting for a bigger profit. Hoping the market will continue to move in his direction enough to generate a profit so big from this unique trade, that his entire life will be set (I’m exaggerating, of course).

Greed is when we never say “thank you” for what we have, taking it for granted. Greed is when we do nothing, but we expect everything. Greed is when we think we don’t have enough. Greed is when we just won’t stop unless we have more and more and more and more. In the forex world, greed is one of the two reasons people are losing money (the other one being fear, see below). In real world, greed is one of the two reasons people are losing life. Livable, balanced life. In terms of forex trading, fear manifests the moment you close a transaction too soon, hence not getting enough profit from your trades. Fear makes you lose money by not letting yourself cash enough of what you deserve. I remember that many times I cashed in way before the trade has to reach my “take profit” point, just to be sure “I get something”. In real life, this translates into trust. Trust that you judged a set of circumstances well. Trust that you will be rewarded for what you are, not for your momentarily perception.

Trust that things will eventually go as you stated. As you may see, it takes a lot of work to balance greed and fear. Both are the engines of the forex trading world, and both are shaping our lives at a very deep, sometimes unconscious level, each and every day. I’m not saying it’s easy to strike a balance. But this experience made it so obvious to me that now I simply can’t stop identifying greed and fear in almost any context of my life. Of course, some days are better than others. 7. Everything Takes Time. During a trade you may see a lot of swings back and forth. Stay with it. Before stabilizing on a trend, the market moves many times. As long as you calculated your risks right, and the swings are between your “take profit” and “stop loss” points, you really have nothing to worry about.

In life there are many ups and downs, but as long as you’re in the right direction (and you trust yourself totally about that) you’ll get there. You may have a lot of detours, a lot of stalled moments and sometimes, it may seem that the road is not leading you anywhere. But, as long as you calculated your risks right, and the life swings are between what you can take for a loss and what you can swallow as a victory, eventually, you’ll get there. You can’t play safe. There’s no such thing as playing safe in the forex trading business. You should always cover your ass as much as you can, but avoiding risk all together will never work. The only moment when you don’t risk in forex is when you don’t have any opened position. Which, in other terms, means you’re not playing at all. It’s the same thing in life. No risk equals no reward. But, as many of you are guessing, I didn’t have to get into forex trading to learn that. What I really learned was something more subtle: the risk can be managed.

Every risk you take can be calculated and can generate a certain set of results. Another way to put this is: “learn to think in scenarios”. If I risk that amount, this thing will happen. If I risk the other amount, another set of things will happen. The result will be mind-blowing: instead of feeling like an endless struggle, the life will start to feel like an off-road circuit. Very, very difficult, but manageable, if you pay enough attention to all the bumps and to all the possible routes. Don’t get trapped in a single pattern or trade for the entire day. Every trade should have a lifetime. The longer you stay with a trade, or with a single way of trading (a. k.a. system), the deeper you’ll sink a swamp of indecision, lack of orientation and, eventually, despair. When you get too trapped into something, being it a relationship, a business, a forex trade, you lose balance. It’s one of the most difficult things I had to reinforce through forex trading but it still pays off big time for me. As of today, I get to work on 3 big areas: writing (on this very blog, or just books), coding (for WPSumo and iAdd, at the time of writing this article) and consulting (in areas defined on the Work With Me page). Whenever I feel trapped into one area, I switch. At times, I can almost feel my brains oxygenating ?? Note: right now the third area is managing another business, called Connect Hub, a coworking space and event venue, and my coding activities are limited to what it takes to keep the blog afloat. 10. Get Out Of Shit. Fast.

Staying in a losing trade and hoping for the market to “recover” is the worst thing you can do. It’s like staying in a relationship that proved to be wrong, and wait for the other person to change. It will never happen. Get out. Of course, there will be losses. But the sooner you get out of that losing trade, the smaller the losses will be. For me, that was the first big moment when I realized forex trading is a very, very difficult business, and you have to embrace it with a very clear mind and attitude. I was guilty of clinging to the past. Like the past was holding everything that my present needed. Of course it wasn’t true. The past is dead. The only thing alive is now. If a thing is going downhill in your life, and you feel you are “just a victim of the circumstances”, take a deep breath, cut the rope, let the rock fall and move again. Believe me, the loss you’re gonna get, in financial (or emotional) terms, is peanuts compared to the slavery you would inflict upon yourself by staying in that stupid relationship, or job, or situation. 11. You Don’t Have To Be Right In Order To Win. This a very difficult lesson. I’d say that this may be the most difficult of all. Because it challenges one of your deepest convictions, which is: you have to be right in order for things to move the way you want. But guess what, you don’t need to be right. Because life in itself isn’t. How you really need to be is in “sync”. Go with the flow.

In forex trading terms, this is usually said as “the market is always right”. For instance, you may have all the reasons to predict that the market will go up, and yet, the market goes down. You opened a bunch of long positions, based on the assumption that you’re gonna be right. Of course, you’re not. And you lose. All you had to do in order to win was to go with the market. Or, if we’re gonna use real life vocabulary, go with the flow. 12. Things Are Not Always What They Seem To Be. I traded divergences heavily. In technical terms, a divergence is an indicator of something “going wrong” with a trend. A divergence is formed when the price seems to go up, but the indicator tells you that this is not exactly right.

I won’t go into details about why this is happening, enough to let you know that, sometimes, things are not what they seem to be. In real life, for instance, a business may show signs of going strong, with a lot of sales and good karma. But behind the curtain things are not so good: employees are ready to leave the board, or the intellectual property is much thinner than you thought, or, and that’s the most common case, the product is already at the end of its life cycle. The fundamental lesson is to always look twice at a process (being it a business, or a psychological process) before deciding you’re gonna embark on it, one way or another. There might always be a divergence hidden way below the surface, waiting to hit you the moment you expect this the least. So, if forex trading is so interesting, why did I give up? The short answer: because I wasn’t prepared. The long answer: because I wasn’t prepared, and my emotional control was way below the required standards, and because I couldn’t stick with a trading plan long enough to make it count, because I got too entrapped and unglued myself from the normal life (yes, those guys with eyes almost closed, walking like zombies, I was one of them). And because I decided it was enough of a lesson for the time being. Am I going to trade again? The long answer: provided that I have the right context, the right skills and the right attitude, I will certainly give it a try in the near future. The short answer: yes. It’s way too much fun. ?? Running For My Life - from zero to ultramarathoner. The spooky thing about depression is that it sneaks in. There aren’t really trumpets and loud voices announcing: “Hail, hail, this is depression entering the room, all rise!

” Nope. It’s slow, silent, creepy. It doesn’t even look like depression. It starts with small isolation thoughts like: “Maybe I shouldn’t get out today, I just don’t feel like going out”. And then it does the same next day. And then the day after that and so on. And then it starts to whisper louder and louder in your ears: “Why would you go outside, you loser? Didn’t have enough yet? Want more people to make fun of how much of a big, fat loser you are?” And then you start to breath in guilt and shame, instead of air. Every breathe you take is putting more dark thoughts into your body. Until you get stuck. You can’t move anymore. At all. If you want to know how I got out of this space, eventually, check out my latest book on Amazon and Kindle. This Post Has 24 Comments. Im still a virgin but I am going to learn trading. I will find my niche and be disciplined. Im a little nervous, but mostly excited that this inspiration matches who I am. I am very interested and and want to be really good at what it takes to do this.

As I am reading blogs and watching videos and learning of the different systems I know I will want to become well acquainted with, I came upon your insights and wanted to say thank you. I am taking notes and really appreciate that you shared your ideas. May I ask what systemplatform you liked to work with most back in the day when you traded? lol How did you first get into it and how did you come to find the Forex to call home…temporarily of course ?? Thanks for your time. Namaste. I used MetaTrader as a platform and mainly candlesticks and price action. I got into it by curiosity and stayed there because of stubornness. ?? Sorry man point 3 is not right. You should have an idea where the trade will end up before you get it into the trade, but you don’t ‘just take profit.’ You need to milk every last pip out the trade to be successful at Forex.

Once the the trade moves down to 23 your risk move your SLoss to Beven ALWAYS PROTECT CAPITAL NO.1 RULE IN FOREX. Once you reach 1-1.5 your Risk move your SL to your 23 Risk. then at 2R, lock in 1.5R and follow this whole process at each stepping stone of the t



Articles:

  • Forex is a losing game