|Is Forex trading astrology for geeks?|
Forex derivatives are an exciting prospect for anyone interested in making money. That includes me.
In essence Forex is an incredibly liquid market where you can use your PC to buy or sell currency instantly. The costs are modest and the leverage is substantial so only a small movement in the currency is necessary for your trade to become profitable. There are plenty of details available elsewhere describing this so look here if you want more background.
Swing trading means trading purely off the fluctuations in price that are predicted using the price history or other immediately available historic data (such as trading volumes or prices of other currencies).
Swing trading is intuitively appealing - when we look at a fluctuating price we see trends and it seems natural to believe that we could profit by buying (or selling) at the start of these trends and then closing the trades for a profit when the trends end.
Reality is a little more tricky. When you are trading for real you can only trade at the extreme right hand edge of the graph - in other words you are guessing where the price will go next. Suddenly things seem a whole lot less predictable.
If the market was perfect then all of the supply and demand and all of the fundamental factors (interest rates, politics, commodoties demand etc.) will determine the price from moment to moment and it would not be possible to profit by swing trading other than through luck. But...
If enough people believe that the price is determined by its history and they buy and sell on that belief then the supply and demand that those people generate can indeed be predicted by using the same price history that they are using. If there are enough such people then perhaps enough of the variation in price can, at least sometimes, be determined purely using the price history. It is this tenuous possibility that keeps me looking at forex as a potential source of income. That, plus the fact that 3 trillion dollars a day changing hands makes it the largest virtual casino in history.
After over 4 months of research I am still unsure if I can make money swing trading forex. I am still researching. I have reached the position that if someone can accurately describe a strategy that is based upon available forex data, then I can code an automatic version of that strategy and run simulations using real back data to verify whether or not it will really make money. I'm still looking to find a strategy that can actually make a consistent profit - sadly I know of no way to prove that such a strategy really exists but it seems possible.
The moment such a strategy does indeed prove profitable, I can use the same code used to verify it to actually make trades. That would be very cool because it can make a percentile gain over time with no further action required on my part except for deciding how to spend the profits.
I recently attended one of Greg Secker's empowernet driven seminars proclaiming to reveal the "ultimate forex secrets". The three strategies he promised to reveal (after you pay him) are all swing trading tactics in sharp contrast to Greg Secker's blog which suggests a focus on trading fundamentals.
Greg tells me he is a real trader and shows me a video of him 'making money' and after two hours of pleasant anecdotes and some light background on forex he then asks for $12,500... no make that $8,000... ok specially for you if you sign up right now $4,000 for a 2 day seminar. Only then will he reveal the secrets I need. Well, if he had those secrets (indeed, if they even exist), he would be trading. Greg is a salesman and as he is selling himself in the seminar the only thing I could learn from him is how to sell - perhaps a good idea because people were queuing up at the seminar so he'll probably clear $40,000 or more for a couple of months work - hardly a traders fortune but quite a good living and obviously more lucrative than his own attempts at trading.
I've learned that it is scarily easy to create trading strategies that are provably fantastic so long as they are proven on the same information that they are developed on. I started using the notion of channel breakouts where I judged that if a price has been roughly constant for some time and then starts to change it is likely to change by enough to make a good trade. Optimising this showed that I could double my money in a month using a 50pt high 15 bar long channel with a tight stop loss and modest profit. Fantastic! I did the test on two months of data, the same two months I did the optimisation work on. Guess what happened when I tried the same strategy with the same optimisation on the following two months: It lost around 30%. Hmm... +100% to -30% in four months. The reason is actually quite simple. Almost any strategy can be optimised and if you test it on the same data it is optimised on then it will perform well. Remember this if you are tempted to buy into a "proven" strategy or plan. Now I always test against different periods to those that I optimise on. As a result I am still searching for a strategy that can really deliver.
Of course, when I do find a truly profitable strategy, you will be the last to know.
written by saeed, July 13, 2010
A sad story
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