Showing posts with label higher time frame. Show all posts
Showing posts with label higher time frame. Show all posts

Forex Myths: Simple vs Complex Strategies

Since I started to learn trading, I heard a lot that "I should keep it simple!". Maybe all of you are familiar with this sentence, but what this really means ?

Based on a healthy trader plan, beginner or not, the right way to start trading a new strategy or system, is to test it on demo for a while, before jumping on the real money account.

So, lets say you are a beginner and learned already the "simple" tools like Trend Lines, Support/Resistances, Channels and Moving Averages. You started by paper trading (history), you tested it on live (but demo) and you decided it's working great. And you started real money account trading with these tools. And it's working. Whats the next step ? Are you gonna stay with this trading style ? From my personal experience, I don't think so.

First of all, it's human nature, to "complicate" things. Second of all, you can't use only the above mentioned tools, forever. Because you will notice is not working all the times. And you will start to wonder why. That is a crucial moment for a beginner trader, because they will jump fast to the  conclusion, that is not working so they will think of changing it completely, with something new and different. Which is wrong, sometimes. Maybe you didn't learn it well, so all you need is to stop trading it on real, go to demo again and don't come back to real, until you will find out what went wrong. Also, you can add other advanced tools to filter your fake signals.

Therefore it doesn't matter if your strategy or system will work or not, you will change/upgrade it, all the time. But the main question is still: How simple you should keep your trading style ?

For those of you that studied my course and/or attended my live classes groups, try to remember that time, when you joined advanced level class. You were starting demo trading for beginners lessons and tools, already, while you were doing paper trading (history) with the intermediate level tools and strategies. Also, when you completed the intermediate, you started to use those intermediate level tools, on live, but still demo. On the next step, you started to use, the advanced tools for paper trading again. But your live trading portfolio already contain beginners and intermediate level tools. And ofcourse, when you finished the advanced level class, you started to use on real, the beginners and intermediate level tools, while you were still practicing demo, the advanced ones.

If you will try to remember your basic charts, from the beginning, you will all notice those tools "looks too simple", for you, now. That is because, many of you are advanced traders right now. And probably some of you, already using the advanced tools, on your real money account.

This is the most logical cycle of learning: getting familiar with the basics, practicing it and using it profitable, in the end.  By working like this, after many years, you will notice a big difference in your trading style, because even advanced tools, are simple for you, today. 

The real problem is when you think, you already reached the advanced level, but you didn't took the right steps and you are using it wrong, even the basic tools. This could happen if you are having a lack of patience in your learning curve.

Simple vs Complex Strategies

By keeping your trading style as simple as can be (efficient), doesn't mean you should stop learning. In trading learning will never stop. It shouldn't. That doesn't mean, that you should try all the possible ideas of all the traders around the web, either. In my point of view it means you should always look for new ways of improving your systems or your trading style. Because you will try to maximize your profits. You want to be more efficient. And since there is no perfect system, you will always try to explain yourself those bad entries signals, exits, etc. This is why we keep the trading journal, right ? Those marks, chart examples and questions, will help us to become better traders, eventually.

Could you ever go back to your previous "simple" tools ? Should you ?

In my way of seeing it, it's not likely to do it. Because when I've decide it to go on real with that tool or system, it means I've tested it for months. So I had a good reason to proceed with it, on the next step: the real trading. Same steps, for upgrading it (adding new tools). So, there's no point for me, to make it simple than that, anymore.

Conclusions

I think this common saying "keep it simple!", is good, mostly for the beginners, due to human nature of complicating things, when they shouldn't. Because in that moment, many think a complicated chart is better. But is not, for them. That's why we say about their charts that looks like "Christmas Trees", when they add tens of oscillators and indicators, that will make them more confused, than helping them. That it is wrong, indeed.

But because some people will remember this sentence, later on, when they reached the advanced level, they will stop learning, thinking "Hey, I should keep it simple!". Which in my opinion is wrong, again. You will never become pro trader like this. You will remain a beginner forever.
(e.q. Remember when you saw my charts, initially ? Remember all you questions about ? How about now, when you already drawing it, almost like me ? Would you stop developing, now ? Would you go back to your "simple" charts, again ?)

Well, ofcourse depends on what do you expect from your trading activity. But don't you ever think, that using only few simple tools, you will have profitable results forever.

Therefore, I think this is a misconception, for most of the traders, beginners or not. In my opinion the right saying should be: "Keep it simple, according to your level!".  And as advanced level trader, don't you ever think "Simple is better!", as long as you know well and you tested properly your "complex" strategy or system.


Best Regards,
^^_Lord_Ice_^^

Forex Myths: Intraday vs Higher Time Frame (HTF)


After reaching a certain level of knowledge, the beginner trader look for a strategy or system, to start his paper trading. Here, in this stage he will take a decision that will haunt him for years. Some people realize it later, some people don't. And they will "run in this circle", for years.

So, this stage can be considered, the first huge mistake, that will change his trading activity for at least a long time, if not forever (Until he will quit trading or keep trying it, but with small results or none). His dilemma is:

Higher Time Frame or Lower Time Frame (Intraday) ?

Due to human nature, most of the people have a lack of patience. In this stage they want to start real trading soon. So they will chose a Intraday strategy for paper trading, then demo and in the end on real trading account. If the beginner would have proper knowledge he would still have to test this strategy for 3-6 months. But again, the lack of patience would make him to consider a shorter period of testing, before starting real trading. This combination of starting Intraday trading, combined with a short period of testing on demo is the most lethal, for the beginners. In my opinion, the fail is close to 100%. ( How many traders, even profitable ones, can say, that they started to have profits from the beginning ? I didn't ! ).

Like I said, the first mistake is choosing Intraday. And this is why I wanted to explain you why, in this article. There is another reason that will make the beginner to choose the Intraday trading (strategy), except his lack of patience for testing. That will be the sellers and all their promo materials. And since the beginners started to learn about trading from their materials, he will be influenced to chose this path.

Lets see...why! And let's take a close look at the real deal of the sellers in this area.


Brokers

As you all know, we can't start trading as a retail trader, unless we are trading using "the third party", the broker services. Also, as you all know, the main income source for the brokers, is the spread.

So, let's do an exercise and see what would be the best deal for a broker:

Let's say he would have a client, that trade on Intraday. Probably will make 10 entries + 10 exits/day at a spread of just 2 pips.

10 x 2p + 10 x 2 pips = 40 pips/client/day/pair

And in 1 month, lets say this client will trade all days, from Monday to Friday:

20 days x 40pips = 800 pips/month/pair

If we will consider this for 1 full lot and aprox $10 for 1 pip...and probably the client will trade many pairs, each day, that must be a good deal...for a broker.

Now, lets see how much will pay a client ( and will earn the broker ), if the client, will trade as a "swing trader" or a trend follower. By trading all month, on HTF, the client will not have more than 10 trades.

10 trades x 4 pips (entry +exit) = 40 pips/month/pair

So an Intraday trader would pay 800pips/month and a Swing Trader would pay...40pips/month (or a Trend Follower on HTF)

Now, what do you think is the best deal for a broker ? An Intraday trader ? Or a HTF trader?

That doesn't mean that a broker want his clients to lose money. They just don't have time for all their clients to learn after the initial contact (phone/e-mail) or to trade HTFs. That broker employee can't go to his boss and say:

"Hey...I've contacted few hundreds of potential clients, this month. They all agree with our services and they will start trading with us...in 6-12 months from now...when they will learn about trading!" If the broker would pay to that employee for 1 year...without having any new clients, he will ruin his business. Also, if they were agree for a monthly commission (from spread mostly), do you think that the broker employee would like to see you doing 10 trades/month, only, when he could have all his clients doing 10 trades/day...?

Imagine a broker that will earn so hard his clients, in months or years, since they practice and start to trade HTF (less profits for the broker) and then, to lose most of them, just because another broker have a new better services. This will ruin the initial example broker business, fast. So he must be able to sign faster the contracts with new clients, even if they will lose most of them in few months (because they'll blow their accounts), since the broker can have more new clients each month.


Introducing Brokers


There are IBs that receive a bonus for opening an account and some don't. But still, for both cases, the broker will pay the IB, a commission from their clients payed spreads.

Usually this commission is around 20- 25% from the payed spread (by the client as trader). So, from those 4 pips/ trade (entry +exit), 1 pip will be the IBs commission. Broker agree to pay this, because that IB, found him a client. The broker would of payed this 1 pip/trade commission to any of his employees.

Now, what do you think is the best deal for a IB since he get a % from the spreads? An Intraday trader ? Or a HTF trader?


Signals Providers

The signals providers charge a monthly fee, for providing to their clients trading signals for their activity. Usually these services fees are around $100-300, for one pair signals or more pairs.

Anyway, lets say you payed $300 and you wait for a signal. Lets say the Signal Provider, wont give you any signal for your payed pair, for...10 days. This could happen, if he would provide you these signals based on HTF analysis. How would you feel to pay a monthly service and to start with 10 days, with no activity ?

Not to mention that this Signal Provider, has the "money back" privacy (as marketing). If they would provide these signals on HTF, they would have tens or hundreds of e-mails/day asking for their payed signals that weren't received yet or money back. Doesn't matter how good are these signals

So, they have to provide you Intraday signals. Because in this way, they can "find" at least few possible entries, starting the first day. If 3 from these "signals" are wrong...they could say: "Hey, but 2 were good! We can't be right all the time! Wait for the next signals!".

They don't care about the quality of their signals. They can always say: "Hey, nobody can be 100% profitable!".  And as long as you receive it daily, you are happier than paying $300 for only 10 signals. And if they'll "ruin" their image...they will start over, under a new "brand" website, ID, etc.

That doesn't mean that a HTF Signal Provider, is good for you. Even if you are profitable with it, you will never know how they do it. So, you'll never learn and you will always be a "client". Not a trader...


EAs/Indicators sellers

Usually the EAs/Indicators are built for Intraday. For HTF are not suited, because you need to keep your trading platform on.

Imagine of keeping your trading computer ON for 2 weeks, just to find few HTF entries using an EA. Is not that comfortable.

Same for a very expensive, Indicator that was built for HFT. You just have to watch it everyday, for hours, hopping to find an entry "confirmation". And it could come for few times/month...


The same situation will be for Strategies Sellers, Trainers and Money Managers (that charge a monthly fee instead a % from profits ) and sometimes even book writers - personal websites with referral links - since all the sellers in this field start their services "portfolio" as a Introducing Broker (for a commissions from spreads), they will  promote Intraday trading. Because is in their best interest to do so.


Conclusions:

As a client, you need to see faster, the results (lack of patience), even if those results are not so good, initially or never.

And instead of promoting HTF (less money for them) for having a bigger % of profitable clients, the sellers prefer to "lose" some clients and replace them with new ones fast, each month.

I'm not saying that everyone will lose money on Intraday. Just, that all the sellers promote it, because Intraday = more money for them. Knowing this, you might wanna think about it, when you want to start you trading activity.

Remember, also, that Intraday "belong" to Institutional Traders ( Trading Companies with with hundred to thousands floor traders, that have way better internet connections than home users and fast news sources - before even posted on newspapers or websites ). You don't want to start your trading carrier here, in this area, as a retail trader (work from your home).

Beginners should start really HTF trading ( ideal Weekly). Then as they'll have better knowledge and experience, they can "lower" the TF. Personally, I found out that W to H1 is the "safest zone" for a retail trader (beginner or advanced one). Specially one that don't want to be +8h/day in front of his computers.


Best Regards,
^^_Lord_Ice_^^