The truth about FX trading..

[momothebored]

Hello,

I'm crawling over from the equities space.
Just have a few questions about FX trading

(i) Are there any major advantages to trading FX vs equities?
Have heard of people that were mediocre equity traders that started making big money once they switched to FX.. some of these guys were Elliot wave / fibo traders.

(ii) Consistent cash flow
Is it realistic to trade FX for a living? Is it realistic to achieve consistent monthly cash flow after a couple years of experience?

(iii) Pure technicals
Besides TA, what other skill-sets would be valuable to know?
Is there a formalized fundamental analysis approach for FX like with equities?

tyvm!

 

[forker]

It is just another market although not centralised and larger.

Plenty of people make a living from it. How long will it take you depends on your ability and I don't think there is any average for this.

You can trade just technically, fundamentally, or both. Fundamental trading is more difficult and requires higher level of risk.

 

[Traderallen]

Currency trading is hard to learn and even harder to master. Anyone who says different is probably trying to take your money. Probably the biggest advantage to currency trading from a newbie approach is you can start with a micro account where you can practice and learn trading live without losing a whole lot of money. Example a 10 point loss on one micro is a one dollar loss. In futures it would be $120 loss and probably even more in equities.

If you are lucky enough to be in the 5% that trade profitably you would still have to get to the probably 1% of those that make enough to trade for a living.

The idea of being a technical trader or a fundamental trader is crap. You have to have a well-rounded knowledge of the market you're intending to trade or you will eventually blow out your account as so many have.

That said, if you have the time, the patients, and the discipline to study practice and learn you can create both wealth and income from currency trading. It's not easy and keep in mind 95% of the information on the Internet about currency trading is incorrect. And most of what is being taught to the new want to be retail trader is purely gimmicks to take their money.

My comments may not be popular but as one of the few profitable traders I know what it takes to make money in the currency markets. TraderAllen

 

[myLIVEaccount]

Forex - open 24/5, no marketplace, largest, most liquid, easy access.

 

[momothebored]

Forex - open 24/5, no marketplace, largest, most liquid, easy access.

My Live Account, 1.8% but that's on the leveraged amount right?


e.g. Say your account size is $100, but you leverage up by 200X (example)

So $2000. 1.8%= $36

So you're making $36 for the $100 you put in?

Am i interpreting that correctly?

 

[momothebored]

Btw, what kind of risk management rules are typically used?

In Forex, i heard the only thing i need to bother with is risking X% of equity per trade based on stop loss?

Is this true? That's the be all and end all for risk management and asset allocation in forex?

 

[danga]

Btw, what kind of risk management rules are typically used?

In Forex, i heard the only thing i need to bother with is risking X% of equity per trade based on stop loss?

Is this true? That's the be all and end all for risk management and asset allocation in forex?

That would depend on your capital, strategy, psychology and back test results. The point is forget about what everyone else is doing taking into account that 95% of retail traders fail.

 

[forker]

Btw, what kind of risk management rules are typically used?

In Forex, i heard the only thing i need to bother with is risking X% of equity per trade based on stop loss?

Is this true? That's the be all and end all for risk management and asset allocation in forex?

Thats just to manage the total risk to the account. You need to manage the trade as well or you will end up losing overall. Focus on keeping your risk to a realistic minimum and try target at leas 1:2 risk\reward (R\R) ratios. The worse the win rate of your strategy the higher the reward aspect of this ratio needs to be (within reason). With a 1:2 you can grow an account on a strategy that is right 50% of the time. This is a realisic ratio that most people can attain if they try hard enough. Oddly, most people seek higher win rates and end up blowing up as a result when they could be making money. Dont be fooled though as even a 50% win rate isnt trivial to achieve, you need to work at it.

A simple strategy that i have been using for years on the daily time frame is an 8\21 emea crossover. It is very simple, takes a few mins a day to work on, and gives me a 50% win rate on average (some months i get 60%). if you do something like this then have 2 accounts to keep things separated (dialy trades vs intraday). Some hard heads on this forum who think they know it all will laugh but at the end of the day i am the one thats laughing. The reason i am laughing is because i have multiple strategies like this that have a win rate of 50-60% and working several of these at once really pays off but keep them simple for clarity (in reference to the daily time frame)

Intraday is a different game altogether. My advice is to get some simple stuff working on the daily time frame and then run through a good deal of testing on intraday with different strategies. None of the strategies i use on the daily work well on intraday (trend following). The crossover one for example gets into trades far too late and ends up with a 30% win rate on average which isnt enough. So you are going to have to deal with intraday with a different hat. you need to focus on strategies that get you in sooner while maintaining your risk profile which is harder to achieve.

Regarding risk\reward (R\R), the smaller the account the harder it is to properly manage because you dont have much wiggle room in terms of lot size. A micro account could allow some flexibility but you need to add more that a few bucks to it in order to have that flexibility when risking % of account per trade. definitely start with a micro account as you will be trading live instead of demo.

whatever you do, good luck

 

[momothebored]

Forker, thanks for this.

Just curious.

I've been taking a look at FX charts for a long time (daily) even though i've never traded FX before, but i do note that Elliot waves are ridiculously common occurrences in most pairs.

Would you have tried these?
By simple observation, implementing a basic EW setup would have made a ton of money.

Thats just to manage the total risk to the account. You need to manage the trade as well or you will end up losing overall. Focus on keeping your risk to a realistic minimum and try target at leas 1:2 risk\reward (R\R) ratios. The worse the win rate of your strategy the higher the reward aspect of this ratio needs to be (within reason). With a 1:2 you can grow an account on a strategy that is right 50% of the time. This is a realisic ratio that most people can attain if they try hard enough. Oddly, most people seek higher win rates and end up blowing up as a result when they could be making money. Dont be fooled though as even a 50% win rate isnt trivial to achieve, you need to work at it.

A simple strategy that i have been using for years on the daily time frame is an 8\21 emea crossover. It is very simple, takes a few mins a day to work on, and gives me a 50% win rate on average (some months i get 60%). if you do something like this then have 2 accounts to keep things separated (dialy trades vs intraday). Some hard heads on this forum who think they know it all will laugh but at the end of the day i am the one thats laughing. The reason i am laughing is because i have multiple strategies like this that have a win rate of 50-60% and working several of these at once really pays off but keep them simple for clarity (in reference to the daily time frame)

Intraday is a different game altogether. My advice is to get some simple stuff working on the daily time frame and then run through a good deal of testing on intraday with different strategies. None of the strategies i use on the daily work well on intraday (trend following). The crossover one for example gets into trades far too late and ends up with a 30% win rate on average which isnt enough. So you are going to have to deal with intraday with a different hat. you need to focus on strategies that get you in sooner while maintaining your risk profile which is harder to achieve.

Regarding risk\reward (R\R), the smaller the account the harder it is to properly manage because you dont have much wiggle room in terms of lot size. A micro account could allow some flexibility but you need to add more that a few bucks to it in order to have that flexibility when risking % of account per trade. definitely start with a micro account as you will be trading live instead of demo.

whatever you do, good luck

 

[forker]

i have never used Elliot so can't comment. That being said i have strategies with similar concepts

 

[myLIVEaccount]

Well, not exactly.
It's $36 from 2k balance.
Check this link for more details:
http://www.dailyfx.com/forex/educat...de/3/2009-10-14-0054-Leverage_and_Margin.html

Btw. with leverage 1:200 you'll be out of the game soon I'm afraid

My Live Account, 1.8% but that's on the leveraged amount right?


e.g. Say your account size is $100, but you leverage up by 200X (example)

So $2000. 1.8%= $36

So you're making $36 for the $100 you put in?

Am i interpreting that correctly?

 

[momothebored]

Well, not exactly.
It's $36 from 2k balance.
Check this link for more details:
http://www.dailyfx.com/forex/educat...de/3/2009-10-14-0054-Leverage_and_Margin.html

Btw. with leverage 1:200 you'll be out of the game soon I'm afraid

:-0


so how do people make a living off this?

Say you need to make $5000 a month to subsist

at a very optimistic 2% ROI per month, you'd need a $250,000 deposit? :\
Which you then leverage up?

 

[myLIVEaccount]

Don't take it personally, but main reason why 95% forex traders fail in long-term are unrealistic expectations. Forex became very popular market thanks to easy access and super-low deposits. New traders are being hyped by fx industry, brokers, VPS providers, signal providers, etc. that forex means easy and quick money. Well, I disagree.

I see here two approaches: there are serious investors, with serious money invested (1% of the retail market), looking for slow but steady profit with very low and well managed risk. For them, 2% a month is a great return comparing to other choices they have (saving bank accounts, bonds, futures, etc..).
But there is also another group (much bigger). They start their "forex journey" with 300 bucks planning to make a 100% return every month and become millionaires soon. They over-leverage their accounts and we all know how they end up.

But enough mentoring
Good luck.
Milan

:-0


so how do people make a living off this?

Say you need to make $5000 a month to subsist

at a very optimistic 2% ROI per month, you'd need a $250,000 deposit? :\
Which you then leverage up?

 

[momothebored]

Don't take it personally, but main reason why 95% forex traders fail in long-term are unrealistic expectations. Forex became very popular market thanks to easy access and super-low deposits. New traders are being hyped by fx industry, brokers, VPS providers, signal providers, etc. that forex means easy and quick money. Well, I disagree.

I see here two approaches: there are serious investors, with serious money invested (1% of the retail market), looking for slow but steady profit with very low and well managed risk. For them, 2% a month is a great return comparing to other choices they have (saving bank accounts, bonds, futures, etc..).
But there is also another group (much bigger). They start their "forex journey" with 300 bucks planning to make a 100% return every month and become millionaires soon. They over-leverage their accounts and we all know how they end up.

But enough mentoring
Good luck.
Milan

Hello Myliveaccount

IF you're taking on huge amounts of risk by taking on leverage, just to make 2% on your base capital, then the reward / risk on FX trading as an asset class becomes garbage, no?


e.g. Someone has $1m. I've seen good equity traders make 2% ($20k) / month on little - no leverage. The caveat was that their AUMs were small enough to avoid float, liquidity issues but this would apply to most retail investors.

Now for FX I have to leverage up many times on the $1m to $50m? $100m? Just to make $20k? Risks are leveraged too.

Assuming I leverage 50X, and use $50m to make $20k... then my 2% ROI / month drops to 0.04% / month.....


Btw, 2% per month compounded is *fantastic* assuming no leverage and would of course beat the vast majority of insitutions and buffett etc. My expectations are built on the fact that you're leveraging up on your deposit and presumably, that there are replicating patterns out there with a high % of repetition to exploit :\

 

[myLIVEaccount]

It's not about leverage, it's about TOTAL RISK taken and how comfortable you are with it.
E.g. if you check my trading strategy, I have around 2% avg month growth with max. 6% drawdown. 6% is also my max. risk that I have in each setup. For me, personally, 6% is the maximum risk I'm ok with. Of course, you can set your risk much higher. You can trade my strategy with risk multiplier 10x, so avg. month for you will be +20%.
But you should be aware of the higher risk as well.
And this is what I was trying to explain in my previous post. Serious investors with 100k+ accounts are usually not comfortable with total risk higher then 5-10% and are ok with 1-2% monthly growth.
For traders with $300, there's no point to get 1-2% monthly. So they usually over-leverage their accounts, risk ALL their money and sooner or later, they always get margin call.
Milan

Hello Myliveaccount

IF you're taking on huge amounts of risk by taking on leverage, just to make 2% on your base capital, then the reward / risk on FX trading as an asset class becomes garbage, no?


e.g. Someone has $1m. I've seen good equity traders make 2% ($20k) / month on little - no leverage. The caveat was that their AUMs were small enough to avoid float, liquidity issues but this would apply to most retail investors.

Now for FX I have to leverage up many times on the $1m to $50m? $100m? Just to make $20k? Risks are leveraged too.

Assuming I leverage 50X, and use $50m to make $20k... then my 2% ROI / month drops to 0.04% / month.....

 

[neil]

FX and burnt fingers

Interesting article in the Times about FX traders, losing percentage, and brokers. Plus Wong trader sues Vantage FX.

http://www.thetimes.co.uk/tto/business/columnists/louisecooper/article4242509.ece

 

[fxmade2trade]

It's not about leverage, it's about TOTAL RISK taken and how comfortable you are with it.
E.g. if you check my trading strategy, I have around 2% avg month growth with max. 6% drawdown. 6% is also my max. risk that I have in each setup. For me, personally, 6% is the maximum risk I'm ok with. Of course, you can set your risk much higher. You can trade my strategy with risk multiplier 10x, so avg. month for you will be +20%.
But you should be aware of the higher risk as well.
And this is what I was trying to explain in my previous post. Serious investors with 100k+ accounts are usually not comfortable with total risk higher then 5-10% and are ok with 1-2% monthly growth.
For traders with $300, there's no point to get 1-2% monthly. So they usually over-leverage their accounts, risk ALL their money and sooner or later, they always get margin call.
Milan

PREACH, Great answers

 

[Pat Riley]

Risk 6% per setup and look for 1-2% growth per month? How many setups per month? Even if it's just the one you're on the road to ruin. Any of my lads hit 6% in a single month and I auction their book. Simple as that.

 

[myLIVEaccount]

That must be impressive performance Pat.
Any 3rd party verified, trading record available?

Risk 6% per setup and look for 1-2% growth per month? How many setups per month? Even if it's just the one you're on the road to ruin. Any of my lads hit 6% in a single month and I auction their book. Simple as that.

 

[Pat Riley]

That must be impressive performance Pat.
Any 3rd party verified, trading record available?

What performance? I asked ya how many setups do you have a month where you're willing to risk 6% on each to make 1-2% profit per month overall. I said even if it's just the one, you're on the road to ruin.