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Mysticforex

Truths of a Forex Junkie!

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The purpose of this thread is to discuss the truth about trading.

 

This will not be a thread about methods. I will not be discussing my methods. I want to discuss the true fundamentals of trading. The important things that are never discussed.

 

I will be adding to this thread once or twice a week as I have time. I trade London and live on the east coast of the US so time is sometimes tough for me.

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First truth.

 

 

The trader must learn to take losses.

 

If you as a trader are unwilling to take a loss you will eventually take the mother of all losses. If the trader is unwilling to take a loss he or she will be forever closing trades with tiny gains that will never overcome their losses.

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Dunno about that.

 

If you are trading with very low costs and scratch every trade UNLESS it pops a couple of ticks immediately you get filled,you will probably end up with 60% scratch trades, 24% small wins, 14% small losses - that also go against you immediately (1 tick max) and 2% of trades that dont look back and make big money. My % are approx. This is just an example for purposes of illustration. It is however a basic concept/theory of market making before you start to look at other markets to hedge against v place in queue etc.

 

Can you think of ANY other business that doesnt go all out to avoid losses at every possible opportunity? Trading, at its heart, is no different from any other business.

 

Id be interested in why you think otherwise.

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  TheDude said:
Dunno about that.

 

If you are trading with very low costs and scratch every trade UNLESS it pops a couple of ticks immediately you get filled,you will probably end up with 60% scratch trades, 24% small wins, 14% small losses - that also go against you immediately (1 tick max) and 2% of trades that dont look back and make big money. My % are approx. This is just an example for purposes of illustration. It is however a basic concept/theory of market making before you start to look at other markets to hedge against v place in queue etc.

 

Can you think of ANY other business that doesnt go all out to avoid losses at every possible opportunity? Trading, at its heart, is no different from any other business.

 

Id be interested in why you think otherwise.

 

I posted a study somewhere here at TL about other businesses.....its summary from memory was that (surprise surprise) about 90% of startup businesses fail to get bigger (so they loose money and fail, stagnate and eventually fail, or just stay small usually as its only marginally profitable). For most of those that survived it was because they had enough money to survive the first poor strategy decision. ie; risk of ruin etc.

Most businesses treat losses as expenses, but the principal is the same.....survive by cutting your losses. Enough management books teach and MBA students will learn this and yet how often to companies continue to throw good money after bad - ie; they dont take their losses.

Market makers still have to take losses.

Plus retail trading is very different to market making as we both know......if it had not become a technology race, equity option market making for me was about minimising losses (time decay) through small scalps, a theoretical edge and gamma trading - waiting for the big moves.....I would think FX is much the same, unless you are short vol then its hoping against big moves and collecting time decay.

 

I think the point is very valid - i just dont like the word truth (I have noticed the wife starting to say it more and more).....its going to be another list of arguments.....bring it on.

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ok maybe Im being pedantic.

 

Let me put it another way - I dont like to focus on losses. 'Careful for what you wish for' as the saying goes.

 

Learning to take a loss? I want to avoid loss at all opportunity. OK sure a loss is a fact of life, but if you learn to avoid them rather than live with them, I think we'll be in a better position (excuse the pun!).

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  TheDude said:
Dunno about that.

 

If you are trading with very low costs and scratch every trade UNLESS it pops a couple of ticks immediately you get filled,you will probably end up with 60% scratch trades, 24% small wins, 14% small losses - that also go against you immediately (1 tick max) and 2% of trades that dont look back and make big money. My % are approx. This is just an example for purposes of illustration. It is however a basic concept/theory of market making before you start to look at other markets to hedge against v place in queue etc.

 

Can you think of ANY other business that doesnt go all out to avoid losses at every possible opportunity? Trading, at its heart, is no different from any other business.

 

Id be interested in why you think otherwise.

 

 

LOL... I used the word Truth because I thought it would be eye catching. I could just as easily used " Ramblings of a Forex Junkie.

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I personally got more upset with the word Junkie! than I did Truths

MF, please don't be a Junkie! :)

Junkies ignore / deny / distort the risks

... which removes any chance of leveraging any real Truths

 

yours, ever pedantic,

 

zdo

Edited by zdo
you should have seen how I spelled pedandic

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  SIUYA said:
I posted a study somewhere here at TL about other businesses.....its summary from memory was that (surprise surprise) about 90% of startup businesses fail to get bigger (so they loose money and fail, stagnate and eventually fail, or just stay small usually as its only marginally profitable). For most of those that survived it was because they had enough money to survive the first poor strategy decision. ie; risk of ruin etc.

Most businesses treat losses as expenses, but the principal is the same.....survive by cutting your losses. Enough management books teach and MBA students will learn this and yet how often to companies continue to throw good money after bad - ie; they dont take their losses.

Market makers still have to take losses.

Plus retail trading is very different to market making as we both know......if it had not become a technology race, equity option market making for me was about minimising losses (time decay) through small scalps, a theoretical edge and gamma trading - waiting for the big moves.....I would think FX is much the same, unless you are short vol then its hoping against big moves and collecting time decay.

 

I think the point is very valid - i just dont like the word truth (I have noticed the wife starting to say it more and more).....its going to be another list of arguments.....bring it on.

 

First post. I am constantly told women make the best traders! .why because they manage risk. The path to success in trading is after all physiology ! The topic or post needs a bucket of water poured on it. I think it's goner continue for a long time! Thanks Beachmaster.

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1 more thing for me (especially for forex traders) , Always put the money in forex or be it any other asset that u dont need ..first try to keep aside some extra money from ur income . once it reaches a level that can be invested then go for it..i had put all the money i had in my first forex account and all that money got dumped with a month with some losses..next few months were the struggle to keep up with the daily and monthly expenses....

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