Most forex retail traders lose money. Why is forex so difficult?

[Cassielite]

Trading is not easy. Its not everyone's bread and butter. If everyone could trade, then everyone would be millionaires. The company is a volatile and toxic place. There are many factors to consider before investing in the market.

Agreed. I wish more people would understand this. Forex trading requires an exceptional level of dedication and concentration. It is not something that comes to everyone. You have to have a brain that understands market behavior/psychology very meticulously in order to be successful here. Just saying trading is easy won’t make it any easier. In fact it could be misleading for some.

 

[ElectricSavant]

But if this were true then the the existence of trends within Forex would not be true.

ES

Without skill or transaction costs, the distribution of terminal one-year wealth (cumulative trading profits) would have a near zero mean but would be heavily right skewed. The median and mode would be to the left of (less than) the mean. So more than 50% would be losers. The math of this was worked out in a Bouchaud paper around six or eight years ago and is also touched on in Piketty's book a few years ago (and expanded on a little more in a recent paper where Piketty was a co-author, the name of which escapes me at the moment). I'll try to find the Bouchaud paper and post it here tomorrow if I find it.

Edit: The argument in Piketty et al is obscured by their focus on generally positive return on capital (postive interest rate, investment return, rent, ect) but it works out even if expected return is zero. Consider two consecutive coin flips, risking 100% of your stake on each flip. Expectation is zero, but 75% of the time you'll end up minus 1 and 25% of the time +3. A bit like the Petersburg game: expectation (mean) is infinity but you'd only pay a few dollars for it.

 

[Sig]

But if this were true then the the existence of trends within Forex would not be true.

ES

There isn't any support to show that the existence of tradable trends is true. In fact all research that uses rigorous statistical analysis points to forex clearly being weak form efficient, far more so than stocks.

 

[tomorton]

There isn't any support to show that the existence of tradable trends is true. In fact all research that uses rigorous statistical analysis points to forex clearly being weak form efficient, far more so than stocks.

So USD/JPY is not in a tradable uptrend?

Of course, it depends how you define "trend" and "tradable" so it could be under your parameters, you are correct. But then it might just be the parameters that are wrong?

 

[ElectricSavant]

This is a good question. Anybody?

ES

How come futures currencies are more efficient? E.g. BP6 - a full pip spread + $5 comms per lot rt versus GBPUSD is from 0-0.2 pip spread + $7 comms. So that's $15 per lot vs $7-$9 per lot.

Can you give an example of a comparable positions in FX and CL and show how CL is more effective? I doubt you'll be able to.

Thanks

 

[Sig]

So USD/JPY is not in a tradable uptrend?

Of course, it depends how you define "trend" and "tradable" so it could be under your parameters, you are correct. But then it might just be the parameters that are wrong?

The problem is approached differently from a statistics perspective which essentially is looking to see if past prices have any predictive effect for future prices. Even stocks are generally weak form efficient, but forex more clearly so.
Of course you or I will find trends and ride them. We'll just also find what we thought were trends but weren't and ride them with equal frequency. Over the universe of thousands of forex traders, statistically there will be some who, looking back, have consistently picked the former more than the latter. Those folks will undoubtedly be here shortly proclaiming their skill and my shortcoming as a trader and human. The one's who weren't successful won't be here, they're not on ET anymore and/or aren't going to be shouting out their failures. A combination of survivor bias and apophenia.

 

[ElectricSavant]

I am surprised that you have not brought in Chaos theory to support if Forex has any trends that can be traded profitably. Also, I do not believe Random Walk theory (these are only a theories) can be applied here due to ease of movement when trends present themselves..eventhough traders do not trade them. You have not persuaded me.

ES

There isn't any support to show that the existence of tradable trends is true. In fact all research that uses rigorous statistical analysis points to forex clearly being weak form efficient, far more so than stocks.

 

[Sig]

I am surprised that you have not brought in Chaos theory to support if Forex has any trends that can be traded profitably. Also, I do not believe Random Walk theory (these are only a theories) can be applied here due to ease of movement when trends present themselves..eventhough traders do not trade them. You have not persuaded me.

ES

Gravity is "only a theory", but it does a pretty good job of explaining a lot of things from spaceflight to my walk to the coffee maker this morning!

 

[ElectricSavant]

Ok no takers? I will tell you why...The dishonest dealers in an unregulated environment without a central quote feed! They hold the purse strings to your account together with the outcome of your trade...what do you expect?

Es

This is a good question. Anybody?

ES

How come futures currencies are more efficient? E.g. BP6 - a full pip spread + $5 comms per lot rt versus GBPUSD is from 0-0.2 pip spread + $7 comms. So that's $15 per lot vs $7-$9 per lot.

Can you give an example of a comparable positions in FX and CL and show how CL is more effective? I doubt you'll be able to.

 

[LewisJas]

Trading is not easy. Its not everyone's bread and butter. If everyone could trade, then everyone would be millionaires. The company is a volatile and toxic place. There are many factors to consider before investing in the market.

Agree with you if trading was so easy then everyone would have become millionaire.