Trading for a living with FX - possible?

Discussion in 'Forex' started by TSchulz, May 20, 2010.

  1. TSchulz


    I am new to this forum and curious if it is at all possible to earn enough with FX trading to live from it.
    To prevent really basic comments, I already traded about $ 500 mio in currencies and I am not totally new to the financial markets.

    In general, I am "concerned" that the markets are that efficient (I wrote my thesis about market efficiency) so that it is impossible to earn significant returns to live from that.
    I am thinking about trading full time on my own account. Actually, I want to risk at the beginning something in the $10k's but would be able to increase it to some $100k's.

    From my past personal trading experiences, I wasn't too successful but the results bear some confidence that I could be. I was mainly trading (average time in the trade 10min - 1.5h) in the evening after work. During one period, I was trading FT (due to job change) for 2.5 months. During this time I was able to increase my money by 250% due to hundreds of tiny trades (no significant single trade skewed that result; there were about 5 trade which earned 5-10% but non above that) and lost all my profits due to a trade which I sticked to (went to holiday and let that trade go and hoped it turns out good). Then after some days of coming back to earth, I started again and the whole story repeated almost 1:1 the same (went up 300% and lost even a bit more then my initial investment).
    I know, my money/risk management is probably the worst which ever existed on the face of the earth. But now I ask myself, if my profits were just statistical luck (potentially due to my tendency to hope losses to turn around) or if I am actually not too bad in trading but my money management is/was so bad that it was impossible to be successful.

    To come back to my original question, I would like to know your experiences if it is possible at all to make a living from FX trading. Are there any people of you who really did it? Or as FX markets are probably the most efficient markets, what do you think are the markets in which you could maybe still make some money.
    In general, there is so much scam that I really not sure, what I could actually expect.

    I better leave it like this for the moment and don't provide more info/background ;-)
    For those who made it through this long post, I would really appreciate any comments :)

  2. Hey Tobi, it's obvious that you're adding/martingaling into losers. I'd suggest you stop doing that and enforce a single entry and exit. FX isn't actually that volatile; implied vols are in the mid-teens now, much lower than many Dow stocks. The granularity on price and the leverage makes it that way.

    There are more traders in FX, directly and indirectly, than any other asset-class. So while the liquidity is great, there is no edge on price-discovery. You can edge-out a niche in minor-markets, but not in FX.

    I'd recommend focusing your attention on equity correlations, specifically, JPY crosses and the SPX or DAX. Superimpose a 30-minute EUR/JPY chart on ESM0 and trade the correlation. Often you can trade the lead/lag profitably. The most successful FX trader I know trades the equity index/JPY correlation exclusively via a price-weighted basket and EUR/JPY superimposed on the chart.
  3. You have a huge internal confliting ideologies. On the one hand, you wrote your thesis on efficient markets, on the other hand your belly is telling you that's not true.

    You are going to have one hell of a time being a successful trader until you resolve this conflict.
  4. rsi80


    Fascinating stuff, atticus.

    Can you possibly elaborate on:

    (1) The equity-and-EUR/JPY correlation. Is this approach essentially mean-reversion based?

    (2) The nature and content of the price-weighted basket.

    Thanks in advance!
  5. Not MR or trend based. You look for leading indications. FX often leads equities due to the granularity; so many moving parts in equities and diverging positions within the index.

    I can't disclose what's in his equity-basket, and honestly I doubt what he's told me is an accurate representation of the basket he uses.
  6. rsi80


    Thanks all the same, atticus.

    Some of your posts like the following 1987-related one really inspire us to think more deeply about risk.

    If you've any anecdotes about May 6, esp. with numbers, please share them with us. It's a blessing to learn about risk without being personally involved...
  7. Ignore all the nay-sayers. Anything is possible.
  8. TSchulz


    First of all sorry for the double post. I wasn't able to post it as my account was not activated and suddenly there were two posts.

    Yes, this is exactly right. Basically I started with the thesis thinking markets are not that efficient but the more I did my analysis the more I got convinced by the efficiency.
    I know the markets are not totally efficient and its possible to achieve abnormal returns. What I didn't analyzed is if it is possible to achieve quite high returns (in the high double digits to triple digits) through "day trading". And that's exactly what I want to know from this thread. Based on my own results I can not rule out it is possible but I also can't rule it out.

    Also it would be quite interesting what you guys think are the best (potentially most inefficient or most technical trading) markets. Basically I started focusing on FX as the provide the best prerequisites (high leverage, volatility, low spreads/commission). But I am also aware that they are probably the most efficient markets and thus hardest to trade profitably.

    BTW, anyone of you ever actively traded e.g. the 5 Year US Treasury Note Futures?
  9. TSchulz


    Hey Atticus,

    Thanks! I think there are some really good thoughts in it! I always used/tracked correlation and also analyzed an similar idea and if it might be possible to set up an automated system to profit from this. I didn't went too much into details and wasn't able to develop a system which was able to achieve good returns.

    In general I'm not a big fan of automated trading systems, especially if your account is below $1mio and you are looking for returns in the high double digits.

    Are you actively trading FX as well? Do you know if it is possible to survive as a discretionary trader in FX markets or is it close to impossible?
  10. Toby, with respect, from how you have traded it shows you don't have much of an idea how traders trade. So I suppose it makes sense that you ask a question that distinguishes Fx from every other market.

    If you are a skilled trader then those skills are efficient in any market. If you are less skilled then something like Fx where it can rip 100 pips or more in a few minutes will destroy you.

    But the simple answer is Fx is a very orderly market with exceptional technicals and fundamentals. It is a dream for all sorts of traders and even newbies can do well with break out strategies on news releases.

    However the way you described your trading experience would guarantee that strategy will sooner or later get your head handed to you.

    It would be unfortunate if you then decided as many others who have tried and failed, that the market can not be beaten. The learning curve can be long and cruel but if you set about finding a structured way to progress then you can indeed beat the market.
    #10     May 21, 2010