Confidence in your strategy?

[LiamH]

Maybe a lower strike rate and 20-30 pip target suits you better, on M15/30 TF with 1-3 trades per day?
Only you can answer that one though, do whatever suits you best

I take trades with the m15\30 in mind anyway... 1\5min for entry. This sounds good in principle, less trades with higher RR ratio but it's knowing in advance which ones to take that is the problem.

Early indications are that my standard 10pip stop\10 pip target trades are going to more or less break even and then the odd runner which seems to be 1 in 10 at the moment will show the profit.

Early days yet, I'll keep the thread updated with my progress for anyone who cares

 

[wackypete2]

I take trades with the m15\30 in mind anyway... 1\5min for entry. This sounds good in principle, less trades with higher RR ratio but it's knowing in advance which ones to take that is the problem.

Early indications are that my standard 10pip stop\10 pip target trades are going to more or less break even and then the odd runner which seems to be 1 in 10 at the moment will show the profit.

Early days yet, I'll keep the thread updated with my progress for anyone who cares

Yes, please keep us updated

Peter

 

[Shakone]

Come to think of it, the strategy may have been more like 50 trades a day, it was a lot.

The approach thus advocated was to sit in front of a screen the entire day, trading many times, risking your capital and then, provided there were no black swan events, the profit would be small and almost certainly less than the broker made.

You can argue "money is money" but come on - who could follow this strategy for any length of time? Certainly you would receive a nice Mont Blanc pen at Christmas from IG, which you could then sell on eBay for £100 (I know a 'high frequency' spreadbet trader to whom this happened, ultimately he quit trading when he went down 40% of his starting equity, which was a material absolute amount).

No, it is not a competition with your broker, but why would you wilfully trade a strategy where the vast chunk of profits is eaten up by bid/ask from constant churning? You aren't going to get a rebate from them when you enter drawdown.

Your profits aren't eaten up by bid/ask. Your profits are what you make AFTER paying bid/ask spreads and commissions. Your profits are yours and don't get eaten at all. The rest is the cost of business.

I guess it is just a different way of looking at it. You could open a shop on Oxford Street, or a shop on the outskirts of London. You get more business in Oxford Street but pay much more rent. Would you say to someone who opened a shop in Oxford st and was making a good profit that they were stupid, because the landlords renting the shop to them were making more money than them?

 

[Z's Apprentice]

Confidence is a funny thing..

Usually, confidence is soaring when I nail 4-5 trades in a row..

Then, confidence get's thrown in the toilet when I miss 4-5 in a row..

I have hundreds and hundreds of trades under my belt, and the emotions are the same..

As soon as you learn that trading is more mental and money management than anything else, your confidence will improve.

 

[meanreversion]

Your profits aren't eaten up by bid/ask. Your profits are what you make AFTER paying bid/ask spreads and commissions. Your profits are yours and don't get eaten at all. The rest is the cost of business.

I guess it is just a different way of looking at it. You could open a shop on Oxford Street, or a shop on the outskirts of London. You get more business in Oxford Street but pay much more rent. Would you say to someone who opened a shop in Oxford st and was making a good profit that they were stupid, because the landlords renting the shop to them were making more money than them?

I'm not sure this is a good analogy. The landlord looks to earn a percentage return based on the value of the building (which he could otherwise sell). The retailer will compare the sales figures with the cost of rent. I suspect it's more profitable to be on Oxford Street itself at twice the rent of, say, Wigmore Street.

The broker doesn't have "yield" as such, his costs are fixed. Thus every new client and trade is additional money.. furthermore there is no limit to how many trades/clients he can process, whereas the landlord can only rent out the space once.

But analogies aside, I would contend that one reason for 80% of traders losing (or whatever the percentage is) is overtrading - would you not agree with this?

 

[wackypete2]

But analogies aside, I would contend that one reason for 80% of traders losing (or whatever the percentage is) is overtrading - would you not agree with this?

I would think a lot of overtrading is associated with revenge trading, hence the reason to overtrade.

Peter

 

[SanMiguel]

I'm not sure this is a good analogy. The landlord looks to earn a percentage return based on the value of the building (which he could otherwise sell). The retailer will compare the sales figures with the cost of rent. I suspect it's more profitable to be on Oxford Street itself at twice the rent of, say, Wigmore Street.

The broker doesn't have "yield" as such, his costs are fixed. Thus every new client and trade is additional money.. furthermore there is no limit to how many trades/clients he can process, whereas the landlord can only rent out the space once.

But analogies aside, I would contend that one reason for 80% of traders losing (or whatever the percentage is) is overtrading - would you not agree with this?

Overtrading, I would say that the spread is a killer as well.
If you don't swing trade, the spread will drain in the long run.
Of course, you're right that if you are profitable then the spread doesn't matter so much but consider if you were trading £100 a point or higher.
1 trade a day on cable at 2 pip spread.
5 trades a week = 10 pips to the broker.
52 weeks a year = 520 pips to the broker = £52k !

The reason no-one cares is because they're giving away relatively small amounts through SB but the percentage is always the same...not to mention the disadvantage of being handicapped by 2 or 3 pips every trade. Maybe you don;t care if you're going for 50 pips but going for 10 or 20, the maths maintain you need at least a 2:1.

A quote from a book that I can't even remember now otherwise I'd give the source.

Let’s assume for the purpose of this example that we are trading a currency pair that has a 3-pip spread, since a spread of that size is very common in the forex market. Our trader just wants to gain 10 pips. That should be easy, right? It’s understood that the trader will lose the spread (3 pips) upon entering the trade. So, in order to turn a profit of 10 pips, the trader actually needs the exchange rate to move 13 pips in his or her favor:
10 + 3 = 13
Now that we know what is required to create a winning trade, let’s see what would have to happen to create an equivalent loss. This is how we will determine the odds of success or failure. In order to generate a loss of 10 pips, the trader would only need an adverse move of 7 pips. This is because a loss of 3 pips is incurred immediately upon entering the trade, again due to the 3-pip spread.
10 − 3 = 7
We’ve determined that our trader needs a positive move of 13 pips to gain 10 pips, but an adverse move of just 7 pips will result in an equivalent loss of 10 pips. The “raw odds” of 10-pip win versus a 10-pip loss for this
trade can be expressed as:
13/7 = 1.857 : 1
The odds of success in this case are 1.857:1, or nearly 2:1 against.

 

[Shakone]

SanMiguel, is that quote from Ed Ponzi's forex book?

Meanreversion, it is hard to answer about overtrading, because by definition that means trading too much. But 5 trades a day might be overtrading for one person, but not another. I'd agree with wackypete, in that it is not the amount of trades, but the emotional trades that kill most people.

If you are trading without an edge, then you can expect to lose in the long run, and that will hold true whether you do 1 trade a day and wipe out your account in 10 years, or 10 trades a day and wipeout your account in 1 year.

 

[SanMiguel]

SanMiguel, is that quote from Ed Ponzi's forex book?

Meanreversion, it is hard to answer about overtrading, because by definition that means trading too much. But 5 trades a day might be overtrading for one person, but not another. I'd agree with wackypete, in that it is not the amount of trades, but the emotional trades that kill most people.

If you are trading without an edge, then you can expect to lose in the long run, and that will hold true whether you do 1 trade a day and wipe out your account in 10 years, or 10 trades a day and wipeout your account in 1 year.

That's the one, though I got a dodgy copy somewhere - don;t tell anyone
I backtested the strategies in the book especially the one at the end where he talks about less liquid times in FX after NY close and they don;t actually work! The trend one might work if you know what you're doing but has just as many stop outs.

 

[meanreversion]

If you are trading without an edge, then you can expect to lose in the long run, and that will hold true whether you do 1 trade a day and wipe out your account in 10 years, or 10 trades a day and wipeout your account in 1 year.

Ah, that mythical beast, the "edge". I still wonder if I have an edge, think about it a lot in fact. I'll let you know in ten years time

 

[Shakone]

If you don't have one, would you rather find out in 1 year or 10?

I agree with what you're saying though. It is much easier to act irrationally over a short period than a long period. So trading short timeframes is probably easier to blow out because of emotions, and quicjker to get rid of you if you have no edge.

 

[Liquid validity]

But analogies aside, I would contend that one reason for 80% of traders losing (or whatever the percentage is) is overtrading - would you not agree with this?

I'd agree with that up to a point, as in yes that is true but only because its combined with taking bad trades, trading just for the sake of it - swinging at sh!t basically.

Hi freq trading can and does work, plenty of scalpers can make 100+ trips a day (not my cuppa has to be said, 1-5 max for me), and then there is the ultimate scalper, the top of the food chain - market makers...

In essence though, I agree its a big factor in many blow ups simply due to the fact that hi freq trading is probably the hardest and most stressful to master, so new traders don't stand a chance.

 

[Masterful]

I'd agree with that up to a point, as in yes that is true but only because its combined with taking bad trades, trading just for the sake of it - swinging at sh!t basically.

Hi freq trading can and does work, plenty of scalpers can make 100+ trips a day (not my cuppa has to be said, 1-5 max for me), and then there is the ultimate scalper, the top of the food chain - market makers...

In essence though, I agree its a big factor in many blow ups simply due to the fact that hi freq trading is probably the hardest and most stressful to master, so new traders don't stand a chance.

Over-trading is specific to each person, for one trader over-trading could be placing 100 trades a day instead of 50, for another it could be placing 2 a week instead of 2 a month. Over trading is a fault among most traders at some point, even among those that are succesful.

IMHO

 

[Liquid validity]

Over-trading is specific to each person, for one trader over-trading could be placing 100 trades a day instead of 50, for another it could be placing 2 a week instead of 2 a month. Over trading is a fault among most traders at some point, even among those that are succesful.

IMHO

Yeah I can see what you mean, trading psych matched to TF and frequency , agree
Generally its associated with account churning as Mean said.

 

[SanMiguel]

Your profits aren't eaten up by bid/ask. Your profits are what you make AFTER paying bid/ask spreads and commissions. Your profits are yours and don't get eaten at all. The rest is the cost of business.

I guess it is just a different way of looking at it. You could open a shop on Oxford Street, or a shop on the outskirts of London. You get more business in Oxford Street but pay much more rent. Would you say to someone who opened a shop in Oxford st and was making a good profit that they were stupid, because the landlords renting the shop to them were making more money than them?

If you were renting your shop in Oxford street (let's call that the software), would you look to reduce other costs of business to gain more money (electricity, stationary, parking, etc; let's call that the spread) - we could go on forever