Forex Daytrading a Losing game?

I keep running across articles like this:

Having been a forex trader for 25 years it amuses me when I see writers defend day trading. They say it really can make money! - Of course they have no track record to back it up just empty words. Fact is you are guaranteed to lose in day trading for one simple reason:

All Movements in Short Time Frames Are Random

Trillions of dollars trade hands each day and million of trader’s trade, all with different objectives and opinions and to say that you can predict what they do in a few hours or a day, is ridiculous. You can’t.

Volatility takes prices anywhere in a day and support and resistance levels are meaningless, so you would have the same success rate flipping a coin.

It’s absolutely impossible to get the odds on your side – PERIOD

This is of course why you NEVER see any of the vendors selling these systems give you a real time track record – Why?

Because they don’t dare trade it!

They would rather write some enticing copy and appeal to the greed and naivety of traders and make their money selling you the system – they win you lose – period.

But I have seen a track record you may say and yes will have, but it’s NOT real.

If you check the disclaimer on it you will see there all hypothetical!

What does that mean?

It means done in hindsight knowing the closing prices!

Now who can’t do that it’s not exactly hard.

If we all knew tomorrows price today we would all be millionaires but we don’t – and neither do we know what will happen tomorrow, so there not worth the paper their written on.

Day trading is a good story but the logic doesn’t add up and the biggest lie about day trading is you can make money at it longer term.

If you could you would see a track record or the vendor would shut up and trade it himself and not need your few hundred dollars.

If you want to win

Appreciate that trading is an odds game and to trade the odds you need to trade over longer periods, where the data is valid and you can have a chance of getting the odds on your side.

Finally

Don’t day trade, get real and trade with the odds on your side.

Article Source: http://EzineArticles.com/?expert=Kelly_Price


I am exploring currency trading and after watching for a couple of weeks it does appear to me that currency fluctuations are more random than stocks and indexes. The books I have read are almost unanimous in saying that you must trade longer term to be successful in the currencies. Does anyone have links to traders who are daytrading currencies profitably?

 

i dont believe short term moves are completely random. i use various indicators and time frames depending on how the market is moving. this gives me a sense of how prices will proceed over the next 5 mins to couple hours.

day trading especially in the spot currency market is one where you simply win more than you lose. also, when you win, make sure your % gain is greater than the % loss when you do lose. you stack the deck and profit. risk management is huge.

some currency pairs act more like stocks than do others

 

I think it's baloney, perhaps it does not offer as frequent good setups in comparison to the e-minis because FOREX is a bit more erractic, for a lack of a better word, but a chart is a chart.

Here is a recent intraday chart of the EURO/USD Pair and I see two perfectly working common patterns in a single day.

Anek

 

if the BOJ were to hike 1% overnight on the yen that would create a daytrading opportunity because there is too much money that would seek the way out and it would take days for them to do so,you as a small guy get to frontrun them. this is an extreme example but it just shows that things are not that simple

 

There are several fallacies in the article you referenced.
The author claims:
"All Movements in Short Time Frames Are Random".
If all movements in short time frames were random, all movement in longer time frames would be random as well.
And:
"If we all knew tomorrows price today we would all be millionaires".
If everyone knew the opening price of some commodity/currency/security tomorrow would everyone be able to be a millionaire as a result of that knowledge?
No.
On his point:
"Appreciate that trading is an odds game and to trade the odds you need to trade over longer periods, where the data is valid and you can have a chance of getting the odds on your side."
If you have the "odds on your side" with a strategy the more you are able to trade that strategy the more likely the true odds will assert themselves. So given two trading-strategies with similar odds the one that lets you trade more frequently has a greater chance of giving you a result closer to the actual odds.

Trading is a compromise. The longer-term/less-frequently you trade the more luck factors into your trading, the shorter-term more-frequently you trade the more transaction costs such as bid/ask spreads and commissions factor in.

 

The article is rubbish.

Typical of the "I can't do it so no one can" type of thinking we see amongst failures in this game.

 

Agree. I don't see at all how FX (or FX futures) any different from any other instruments... Yes each contract has its personality but basically same TA applies everywhere.

And also, most people can't trade not because market is untradeable, but because they lack psychological skills needed to trade well.

Someone can easily develop a good profitable method, but few would be able to trade it... Thats why selling signals (absolutely real, profitable signals) is much easier than trading them actually.

 

Anekdoten,

I dont know how profitable you are and dont know your setups, time frame, capital, leverage, whatever. But it does not matter.

All I like to say is that your chart that you attached does not prove ANYTHING. You said that this is a chart that shows 2 typical pattern. I reply to this: Give me ANY chart, any day and I pick you some patterns that you might recognize. Besides that, I can do the opposite for you: Pick any pattern you want and I find you several days on which those patterns occurred. This means NOTHING, and certainly does not prove that short term fx rates are NOT RANDOM. The point is that yes, on your chart the pattern as you described it occurred but you said that in retrospect. Did you know BEFOREHAND that the pattern would develop? Did you know that and position yourself accordingly? NO, I bet you did not, because the pattern became apparent AFTER it was formed. So, I dont think this proves ANYTHING.

I am not saying your stuff does not work. Honestly speaking, I am not interested in how profitable you are, and how you trade. This thread is about supporting or criticizing the OP's claims. Just saying it works for me or you does not mean anything as there is no backup. Sorry but no proof, no nothing!!!

So, if you can come up with facts that support your claim that in the short term rates are not completely random then I am very curious and my ears are wide open. But I also believe that in the short term rates are pretty much random and that OVER TIME (transaction costs, slippage, sudden spikes that cause you to close at a larger loss than initially anticipated , and many other factors) trades in the very short term are not profitable. There is enough empirical AS WELL AS academic evidence/research out there (I am happy to point you to statistical tests, research papers) that support the claim that in the short term fx rates are pretty much random.

Of course everyone makes money some times, even on very short time frames, be it for luck or other reasons, but over time I dont believe that anyone can profitably trade fx by scalping the markets. The risk-reward ratio is just not favorable enough because too many factors (as mentioned above) are negatively impacting short-term traders.

 

Sure, and if you turned gay overnight I could offer your girl friend/wife advice to get out of this "turned-sour" relationship for a negligable fee. Guess what, the probabilities of a 1% overnight hike or cut is about equal what you get by turning gay ;-) (Also an extreme example but you called for it , not me)

By the way, even if such mirracle came up you think you would profit from that? I claim your chances of making good money is 50% and the chance of losing ALL your investments with this one single trade is also about 50%. THe market would be so volatile that your pockets would not be sufficiently deep to weather this storm. And if you did by chance then when the next big market move came up you would then lose the house and some. Get the point? There is a certain reason why bank traders hugely reduce positions during highly volatile times or before major announcements. Guess why.....;-)

 

I think actually all of your critcism is invalid:

a) If all movements in short time frames were random, all movement in longer time frames would be random as well.

-> not true. Stock prices move very randomly in the extreme short run. However in the long run stocks have clear upward drift. Guess why you have a positive drift term in stochastic calculus for a Geometric Brownian Motion (which is used to model stock prices). However, in the short run the price can go up or down with equal probability. This is just one example but the same holds for example currently in commodity markets. The odds of oil going up over the next few weeks/months are very favorable. Well, do you claim this also is true for the next 5-10 minutes? Nobody knows where oil will be from no till the next 5 or 10 minutes. At least there are no clear odds to where it would trade.

b) If you have the "odds on your side" with a strategy the more you are able to trade that strategy the more likely the true odds will assert themselves. So given two trading-strategies with similar odds the one that lets you trade more frequently has a greater chance of giving you a result closer to the actual odds.

-> True in itself. But who says that the odds are on your side for a 5 minute trade? You dont know, nobody knows. Its pretty much random. It can spike up totally against your short and you either need to cover at a loss, or you keep it running and it goes further up and you cover later at an even bigger loss or it comes back and you GOT LUCKY. I hope you dont call this luck your odds, that would be very worrysome. The same does NOT hold for longer term trades. Longer term trades require smaller positions or deeper pockets, but the huge benefit is that you omit the random movements that can often kick you out of trades in the short term for no apparent reason.