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Originally Posted by TraderABC
Hello all. I have a question that is crucial. What kind of a trading style is the most appropriate for someone who wants to make consistent gains enough to live on?
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This depends entirely on the trader. There is no one answer -- I don't care what the gurus tell you. And your backtests? They don't mean squat! You'll find the most successful traders are those who trade on relativley longer time frames with good risk models. (I'm measuring the most successful traders by how much money they're worth and I'm talking about the likes of Seykota, Lipschutz, et al.) I have never heard of anyone making $400 million trading 10 min charts!...have you???
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Originally Posted by TraderABC
I have studied markets for a while and I've just got confused... I read almost every book I can find and questions just pile up. For example most if not all people are talking about how you got to position trade if you want to survive and grow your account. For example Alexander Elder (whose advice I value very much) is of that school. But one thing has to be taken into consideration, most books were written a decade or more ago when computers and internet was undeveloped. Today you can execute trades in seconds and price per transaction is very small. I have backtested DOZENS of systems and I always found a pattern, the shorter the time frame the MORE money it brings (taking spread into consideration). It doesn't make sense to hold and let profits run, it doesn't work as the markets do not go horizontally.?
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You found this by backtesting? (Read the above comment on backtesting.) I would take this conclusion with a grain of salt -- a very fine grain! I have no doubt one can make a living scalping. I scalp occasionally. But your results are based on your perception. Remember that! The next person who comes along and uses your indicators/signals to generate a backtest will likely have a completely different result. (This is true even if that person codes your method into a mechanical system! Neat, huh?) The fact that computers and internet have developed so much in the past 10 years has very little to do with whether one strategy is more profitable than another. I look at the reality -- the richer traders are trading longer time frames...but it is their risk models and attitudes that make them rich, not necessarily their method.
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Originally Posted by TraderABC
The time spent in a sideways market or retracement on the daily , could be used to fish 1000s of pips from dozen of trades... In all of my backtests switching the program to a shorter time frame made more gains. It doesn't matter what indicators my program used, the recent one uses none (other than price) and it was the best btw.
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Remember that you still have to get those dozens of trades RIGHT. Are you telling me that your risk to reward will always be at least 1.5:1 on a 5 min chart? Are you also telling me that your W/L will always be greater than 55%? I didn't think so! It sounds like you're actually making a case for shorter term trading. Have you considered the transaction costs? You mention the spreads are lower -- but in reality, they aren't. I strongly urge you to revisit the real costs of your transactions over the long term.
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Originally Posted by TraderABC
Pro's of position trading
- Possibly relaxed training
- don't spend as much time at the computer
-Big gains per trade
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First, I would argue with the notion that one ought to spend less time at the screen when trading longer term timeframes. What if you just opened a short position on the Cable and went to bed? Well, you missed the hourly hammer formation four candles later that came back and killed your position! Instead of letting your stop trail by 50 pips and letting price come back and take out your stop, you could have moved your stops lower after the hammer formed and protected your trade -- or even protected a little profit! So, sir, I disagree with that statement. You HAVE TO BE VIGILENT, no matter what time frame(s) you use. And if you're not relaxed on the 5 min charts, you won't be relaxed on the 1 hour charts, either.
The biggest pro I personally see in the longer term time frames is the ability to better manage risk. That is all. One can make big gains on the 1 min charts, but with transaction costs what they are (even on ) there is no way to manage risk in a rational way. I find myself passing up many, many trades on smaller time frames because my expected value only yields a RRR of 1:1 or less. I'm not on the floor, so I can't trade tiny spreads to make scalping worth it...and most of those guys don't really get rich either. (Most of them wash out, as well.)
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Originally Posted by TraderABC
Cons
- Possibly much more stressful as sudden news can easily send a currency flying 100 pips against you (and stops may not work).
-True that you have fewer trades with small commision, but carryover costs
make up for those.
- Have to sit through retracements and sideway movements where you could
be gaining (or atleast not loosing money through carryovers).
- HUGE STOP LOSSES. You can lose a lot per trade, much more than if you day traded. In my backtests it has shown that the bigger the SL the more often you win... But what can a small sized investor do? So much for trying to offset this by buy 10 lots or so... 100 sl with 10 lots = 1000 pips... ouch.
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The first point cuts both ways, my friend. (As most things do when discussing the merits of trading methods.) I completely disagree with the second point. There are ways of reducing those costs (adjusting leverage, only trading in a favorable direction, etc.). On the third point, you could be trading the smaller moves at the same time that you are holding your longer term trade. I do. Why shouldn't you? I disagree that you have to have huge stop losses...or even that the size of the SL is relevant. What is important is how much you are prepared to lose to learn which way the market will move. A small sized investor can move to O_A_N_D_A or GFT, both of which allow you to properly scale your risk regardless of the amount of risk capital. Mini accounts (minilots on often larger spreads than standard sized accounts) are a losing proposition!
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Originally Posted by TraderABC
Scalping
PRO's
-many small gains
-small stop lossess (which means a person can afford to trade)
-In a way less stressful due to the fact that you don't hold your positions for too long.
-Potentially you spend LESS time at the computer. I mean if you catch a quick trade with 10 lots, that could give you a decent profit for a day.
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On the first point, have you considered the many small losses? And the transaction costs? And have you also considered the importance of precision timing because of the small stop losses? And after all, how many of us get the entry right the first time each time we pull the trigger? Small stop losses = getting your teeth kicked in one at a time by small moves in the volatile currency markets. You have 32 teeth or so...if I recall correctly. Sounds painful. Less time at the computer means fewer bite-sized profits, which means less overall profit than that larger trade you got right trading that awesome head and shoulders on the 4 hour charts...and on bad days, you'll be feeling pretty compulsive about making up for all those losses long after the market has ended its primary move -- trust me, this can be grueling. Shorter time frames can actually be more stressful if you don't get it right...because your higher risk to reward makes it harder to make up for losses and because of the psychological affects of losing (and winning) in a more focused time frame.
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Originally Posted by TraderABC
Con's
- You could spend much more time at the computer (especially if you are looking at a non-frequent set up)
- Potentially you could loose alot of them due to market noise and or changes (which are more likely to be noticed at lower time frames)
-Requires quick thinking.
- Slippage and or broker/chart may not give the same price and because of it seriously eat your profit...
- May require a kind of equipment not available to ordinary folks. I heard someone uses 9 monitors and bunch of computers... WOW. And I thought that adding another monitor to my pc was cutting edge for trading...
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All of the above is true...but I highly doubt the usefulness of using 9 monitors. I use three. If I were trading stocks and commodities, I might have more.
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Originally Posted by TraderABC
[Anyone here makes a living from trading? Do you scalp, daytrade, swing trade or position trade? Why is all the statistic showing that position traders win and day traders loose? Maybe it is because those who position trade have enough money to start with. Those who can wait and tolerate large drawdowns can easily have 100% win percentage.... But ordinary folks with few dozen K cannot do that and profit well... Any ideas? Thanks.
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I don't yet make a living from trading. I have a job I love. But I make money trading. And I don't have to be right more than 45% of the time....although I am right more than half the time.I scalp the Euro and I swing trade the Cable and Swissy. I will also play breakouts of consolidation patterns on all the majors. The trick is to have more than one tool in your trading arsenal. You need to be able to change gears when the market changes. Statistically, position traders do win -- it's simple math. They have better risk to reward ratios and they are more often better equipped to let their profits run. If you have even $1000, on O_A_N_D_A, and risk 5% of your equity on each trade, you could build an account of several hundred thousand dollars in a very short amount of time, provided your trading model has inherent parameters built into it that cuts losses and lets profits run. You don't need to have $100K, anyway. Once you've achieved a consistent and profitable track record, money will find you...and by the way, that part about the 100% win advantage being easy to those with adequate capital? PURE CRAP. A loss is a loss...even for guys like Warren Buffet when you consider the time he has to spend scrambling to hedge his position in teh current market. How long is he prepared to wait before he cuts his trade loose? Answer: Until he's hedged and can make it back in another instrument. He won't wait forever to see if he's right. Even he has a threshold.
So my advice to you is to be patient. Develop a good trading model that inherently exposes you to risks that are much smaller than potential gains. Once you develop the skills to anticipate expected value, risk and reward, it will come easily. (Fortunately, this is not as complicated as the self-promoters out there would like you to believe.)
I didn't even develop my own model. I use someone else's. (Which, by the way, he was good enough to share for free, in stark contrast to a lot of the sleeze on this forum.) I suppose I'm fortunate in that it speaks to me and gives me an edge -- which is all you need.
GL and GT.
J
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