Forex : legend and truth


When you explore with a search engine on the perception of forex, we can see a big quantity of information offered. Companies of all kinds, brokers, sellers and signal system trading, trading trainers etc ... are present. The offers are always good-looking to growing small players in the market to invest in the market in a straight line or in a roundabout way through derivatives.

This piece of writing allows you to make out these offers and so consider our target as a player in this market.

The forex, dream and brilliance.

Which never came crossways an offer "400 pips in 2 weeks", or "double your money in 2 months" etc ... ? It is hypothetically probable to make cash in a short time with the influence. But as it actually is particularly with the warnings of some people?

Throughout these offers, it seems likely to think a little one has managed to attain achievement. It is already in the near future or the money keeps flowing, everything is allowed, where the requests of millionaires are finally on hand ... etc In addition, we also imagine the looks of jealousy our friends, our friends, colleagues ... I call it, the effect Euromillion ...

For other people, the fancy through the mastery to tame a market, ie to make a prophecy of future development. It is then that you feel unbeatable, we had the feeling everything I know about the market, which was something that a person ... etc ... In short, you feel more intellectual, there is the ego speaking ...

In short, a question naturally comes to our mind, is a actuality or a myth unreachable?

Win/Loss Concepts

To examine a system, a trading strategy, performance, risks I want to establish two concepts which are those of the likelihood of winning a trade and the probability of losing a trade, with the assumption that you earn provided that you lose. This is actually making a bet. If you win, you win a sum, if we lose we lose this money.

To achieve these two probabilities to obtain, there will be a small calculation. To do this you need 3 elements: the total amount of winning trades (known Sw), the total amount of losing trades (which we will appoint Sl), the total trading (St).

It was the result of the following sequence:
10 - 5 32 - 25 + 35 -22

Total is the St = 10 - 5 32 - 25 = 35 -22 77-52 = + 25
Sw = 10 +32 +35 = 77 = 5 and SL 25 + 22 = 52

Then the prospect of having a winning trade (Pw) by having a Target Profit equal to the Stop-loss is defined as follows: Pw = (St / (Sw + Sl) +1) / 2. and the probability of having a losing trade (Pl) in the same condition is defined as follows: Pl = 1-Pw.

Taking the previous example, it was then:

Pw = (25 / (77 +52) + 1) / 2
Pw = (25/129 +1) / 2
Pw = 1.19 / 2 = 59%
therefore Pl= 41% So on 10 trades, it takes 6 to 4 winning trades trades Losers.

Note: imagine that your strategy is based on a profit of 10 Target pips and a stop loss of 100 pips. In trade, you have an average of 10 trades 1 win for losing trade. So we have a following sequence: 10 10 10 +10 +10 +10 +10 +10 +10 +10 -100

therefore St = 0, Sw = 100; Sl = 100, ie Pw = (0 +1) / 2 = 50% and PL = 50%.

Finally, whatever the settings of target profit and stop loss, the probability of making gains are 50%. Did not consider the costs of spreads, in fact Pw
Pw = 0, Pl = 100% -> sequence of pure loss.
Pw = 33; Pl = 66% -> 2 times as much loss as trades winners.
Pw = 50; Pl = 50% -> zero total result.
Pw = 66; Pl = 33% -> 2 times more winning trades than losers.
Pw = 100; Pl = 0% -> Chain trades winners.

Your own review :

I introduced these concepts so you can judge yourself by a sequence of trades and draw some conclusions.

Most successful strategies have the following results: 40% <[Pl and Pw] <60% in the long term. Imagine that we had the following offer: you double your money in X months, with a MDD (Max Drawdown) of 80%.

So to be estimated, Sl = 80; Sw = 180 (because we consider the gain to loss bail 80, which allows more than double the capital of 100), St = 100. So Pw = 69% and PL = 31%. To be critical, it is a system that is plausible. But we must say that if the market allows the loss of 80% of the capital, then it also helps in the future loss of 20%. For example, if a loss is 10 days 80% of the capital, why can not the market does not stay 2 days longer in this state and you lose all of the Capital? In addition, if you lost 80% of your capital, you will need some time to regain the capital. In effect, you must multiply by 5 the remaining 20%, or play left or double! The finale, have an MDD over 50% of capital to maximize its earnings, but also weaken your capital during times of loss. If you are in this case, when you consider the forex like a game of paris ... I call it, the effect Kirvela ...

A second example is to see a doubling of the capital with 10% of MDD. It was: sl = 10; Sw = 110; Pw = 91% = 9% Pl. There are two possibilities. The first, the sequence is on a very limited time (2 weeks / 2 months), which does not see the system response in case of loss. The second solution is that the strategy comes fully expected the market's reaction to the point of providing 9 times out of 10 good outcome. Considering the behavior of the market as chaotic. It is difficult to believe that such a strategy exists, unless you have a crystal ball ... We can call people who claimed to be in this situation of "Wizards" ...

Third example is to earn 20% with a MDD of 20%. therefore Sl = 20; Sw = 40%, so Pw = 66%; Pl = 33%. It is a strategy that is possible. The advantage is to preserve capital in contrast to the first case. It is a strategy that can be lost if the testing was done on a very limited time. However, the results are quite encouraging in the long term. In finding a significant margin, you risk losing the worst 30% of the capital. This means that at worst you will have 2 times more than what you have to lose to rebuild your capital. (It is less dangerous than the first case ...) In this case, the virtue this risk is rewarded by the protection of that capital, even if it is detrimental to performance. The first victory for a trader is to preserve its capital, then gradually gain without compromising its peri Fund departure. If you are in this case, then you are a Sage and richness you seek the hands ...

Conclusion :

We are at the end of this article. You've seen how to know what is behind each strategy. Then we saw that the vehicle forex good a picture where you can make a fortune. But the importance of the values are inversely proportional to the risks you take ... So are you "punter", "sorcerer", "Sage" ... ?