Day Trading Talk

Sacha Tarkovsky asked:


If you look at the amount of day trading systems and methods on the web you would think there would be a lot of people making a lot of money.

The fact however is day trading methods don’t work and day trading is NOT a way to make profits, its a way to wipe your trading equity out quickly.

If you want to know why you wont win read the facts

Firstly, I have been involved in financial trading for 20 years and never seen a day trader with a track record of consistent profits.

When you buy a method from a vendor they normally try and persuade you with a few testimonials of odd winners (day traders sometimes get lucky ) or a hypothetical track record of great gains.

Let me explain what a hypothetical track record is. It’s a record made in hindsight knowing the closing prices so it’s hardly surprising you never see one that losses.

Ask anyone selling a day trading, method for the real time track record over the long term and you won’t get one, simply because day trading doesn’t make money.

Lets look at why.

1. Time Frame is to short

The time frame is simply to short. You cannot predict what will happen in a single day and prices could go anywhere. You may as well flip a coin.

2. Volatility in short time frames

Again is random.

Day traders like to place fairly tight stops and normally they get taken out by volatility.

3. You need to run profits

Part of successful trading is to “ Run your profits and cut your losses”

In day trading methods you certainly can cut your losses ( and you will have a lot of them) but running profits is totally alien to day traders.

They normally want to scalp the trade for small profits and get out quickly.

The net result is they have a few profits that are marginal and never make up for the huge amount of losses they take.

The reality is:

Currency markets reflect long term economic conditions and trend longer term.

Each day trillions of dollars are traded in the markets and to try and predict price direction and volatility in a day, or a few hours is not going to work.

The real test of any trading method (not just a day trading method) is if it makes profits over the longer term.

As we said earlier ask anyone selling a day trading method for a profitable real time track record and you wont get one.



Gregory

Sacha Tarkovsky asked:


Day trading systems, everywhere I look I see them on the internet. They offer huge profits with little or no risk but the fact is day trading simply loses money.

Ask any e-book seller for a track record to support their claims that their day trading system makes money and you will normally be met with a deafening silence.

They can’t produce one, because day trading is doomed to failure.

In theory, day trading sounds exciting and profitable:

Hopping in and out the market, taking a few pips here and there and overtime your day trading will make you huge profits with low risk.

This however is not the reality for the following reasons.

1. Currency price trends

Currencies are subject to supply and demand and are a reflection of the underlying health of a countries economy.

If you look at any price chart you will see that over the longer term trends can last for weeks, months or even years.

Shorter term moves tend to be random.

2. The shorter the data the less reliable it is

Let’s take an insurance company when they calculate your life insurance premium.

Ask yourself this question:

How much data do they use?

Do they calculate premiums based upon when say 10 people?

Of course they don’t.

They use hundreds of thousands or more, as the more people they use the more reliable the data is for their calculation.

It’s the same in currency trading:

You can’t anticipate what is going to happen in a day because you simply don’t have reliable data.

It’s common sense really.

Let’s look at another problem.

3. Volatility

Consider a snapshot day in currency trading

Trillions of dollars are traded – that’s a lot of money!

Traders are all trading for different reasons and it is literally impossible to calculate what volatility or price movement will be in a specific day.

Day traders make the mistake of thinking they can.

Stops take them out the market when they least expect it, as volatility rears its ugly head.

Day trading creates risk

Day traders like to talk about restricting risk, but they actually create it for themselves, by trading with stops that are to close guaranteeing they will lose.

On the other hand, they restrict their profits.

The idea is to take profits quickly and move on.

Let’s look at the day trading equation:

High chance of being stopped out + never run profits = loses

The way of course to make money in forex trading is:

Run your profits to cover your inevitable losses.

This is a fundamental rule of trading!

The acid test

Finally, day traders remind me of the old Burger King advert.

When they were looking at McDonalds burgers and insinuating they had less beef than theirs.

“WHERE’S THE BEEF?”

Was the memorable phrase and to be fair McDonalds burgers, at least they had some!

Ask a day trader:

“WHERE’S THE PROFIT?”

And you won’t find any!

Thinking about it

That e-book I was going to buy offering me huge profits for just $99.00 – Might have a Big Mac and fries instead its better value and I get change to.



Sergio Bazini