The Key Of Success In Forex Trading Is Education

[MDS736]

Ok, i understand what you're saying. I agree, many do get caught up in the education part of thing. Some get so caught up in theory that they can't make a decision on how to place their trades.
You made one comment about participating in a negative sum game. What do you mean by that? Thanks.

[pipscooper]

Originally Posted by mcboogs

Saying that money management is not an edge seems somewhat ridiculous. However, if we're only defining "edge" as finding good entries and exits, then I suppose it doesn't apply. I believe an "edge" is anything that can help you turn a profit and MM definately rests under this umbrella.

IMO - Good money management can turn slight losers into winners and winners into bigger winners(1). It also is paramount to managing losses(2). Making your money work for you to increase your profits and cut your losses is one of many "edges" a trader can have.

1) For example, a trend trader who reinvests unrealized profits by opening larger positions during a strong trend can make a lot more money than one that doesn't [on the flipside it can also lead to bigger losses if the market then moves against you]. Succesful management in this regard can turn a system that initially shows a loss into one that makes a profit, because more profit is realized on the profitable trades.

2) As losing is a harsh reality of trading anything, good money management allows for a trader to, without getting emotional about it, accept losses and get away from losing positions.

I agree, with the author of this thread, that education is really key to success in Forex trading, or any trading, or just about anything, period. In regards to FOREX in particular, there are so many ways a trader might approach the markets, so becoming a sponge and sucking up as much information as you can will help you find an approach that works for you.

As important as it is, money management still cannot turn a losing system into a winning system. If it could, Las Vegas casinos would have been put out of business by individuals with clever money management techniques (many have tried). The truth is that as long as the casinos have even a slight edge over their customers, they will win in the long run. The best way to find this out is to take a losing system (any system) and by applying money management techniques, attempt to make it into a winning strategy. I have tried. Perhaps you will have more success than I have had?

I would just add that while there are many ways to approach the market, the ways to approach the market AND make a profit are few indeed. I realize that this also contradicts conventional wisdom.

[pipscooper]

Originally Posted by MDS736

Ok, i understand what you're saying. I agree, many do get caught up in the education part of thing. Some get so caught up in theory that they can't make a decision on how to place their trades.
You made one comment about participating in a negative sum game. What do you mean by that? Thanks.

A zero sum game is one where one person's losses are another person's gains (imagine a 3 person trading game - at least one has to lose for someone else to win). When you take out commissions / spreads the game becomes negative.

Some argue that trading forex really isn't a zero sum or negative sum game because of the commercial aspect. However, whether it is actually a negative sum game or not is really not important.

What is important is that you approach trading as if it were a negative sum game. Approaching it in this manner means only putting on trades when opportunity exists in the market that your edge can exploit.

[pipscooper]

And while I'm on the subject of edges, let me share my definition of edge:

An edge is any strategy, system or method that exploits the opportunity that exists in the market. It is the market participants in aggregate who create the opportunity. Our job as traders is to identify the opportunity that exists in the market and devise the ways and means for exploiting that opportunity in the most efficient manner. A synonym for "opportunity" in this context is "inefficiency."

[RedDuke]

Hi Pipscooper,

I do not think it can be said any better or clearer.

Regards,
redduke

[akforex]

Any succesful trading system must take into account three important factors:money management,price forecasting,timing.

[californiajeff]

Originally Posted by pipscooper

As important as it is, money management still cannot turn a losing system into a winning system. If it could, Las Vegas casinos would have been put out of business by individuals with clever money management techniques (many have tried). The truth is that as long as the casinos have even a slight edge over their customers, they will win in the long run. The best way to find this out is to take a losing system (any system) and by applying money management techniques, attempt to make it into a winning strategy. I have tried. Perhaps you will have more success than I have had?

I would just add that while there are many ways to approach the market, the ways to approach the market AND make a profit are few indeed. I realize that this also contradicts conventional wisdom.

I agree with you 100% that money management cannot turn a losing system into a winning system. Most casino games in Las Vegas have at least a 1% -2% house edge. That is why a lot of people say the casinos can't be beaten. There are a few exceptions however.

If you can count cards in Blackjack and you play at a good game you could have a 1% - 2% edge in your favor. Playing $25 a hand you probably could make about $30,000 a year and fly under the radar. However, casinos are aware of this flaw and will kick you out if they suspect you of counting cards. At $500 a hand you could make around $600,000 a year but I doubt you will last very long in any casino before getting kicked out.

There are some video poker machines that have 1% - 2% odds in the players favor. However at a max $1.25 bet you would be making around $5 or $6 an hour. Not worth it to most people.

You might be able to gain a mathematical edge in poker but I would need to do more research in this area. In my research so far, I believe it is possible. However, due to the immense variables involved in poker more study would be needed. I am not aware of anyone that has done a complete mathematical analysis on poker.

There are also some ways to gain a mathematical advantage on certain jackpots and tournaments but that could get so in detail I won't go into any specifics here.

[californiajeff]

Originally Posted by pipscooper

A zero sum game is one where one person's losses are another person's gains (imagine a 3 person trading game - at least one has to lose for someone else to win). When you take out commissions / spreads the game becomes negative.

Some argue that trading forex really isn't a zero sum or negative sum game because of the commercial aspect. However, whether it is actually a negative sum game or not is really not important.

What is important is that you approach trading as if it were a negative sum game. Approaching it in this manner means only putting on trades when opportunity exists in the market that your edge can exploit.

I believe the forex market is a positive sum game. One problem with fiat money systems is that a lot of governments like to get loose with the printing presses. I heard a rumor that Japan spent 40 trillion in yen last year trying to keep the value of the yen down. In my opinion that is 40 trillion yen (roughly $400 billion or so) for the taking.