Tag Archives: day trading

Each quarter the US forex brokers who fall under the regulation of the Commodity Futures Trading Commission (CFTC) - which is most of them – report profitability figures (see the most recent tallies posted by Forex Magnates here). This has been going on since 2010, with reported figures back to 2009. On average, these reports have shown that just about 30% of active accounts (those doing at least 1 trade) make money in any given quarter. The CFTC put this reporting requirement in to provide a bit of transparency as to the reality of performance among traders, but in some ways they have actually muddled things a bit. Let me explain.

First of all, the broker-reported figures are for accounts, not traders. Granted, for most people that is the same thing. As I discussed in a recent post, however, some traders have multiple accounts and the evidence suggests that these are among the better performers. If that is indeed the case, then the broker-reported figures actually overstate how many traders make money each quarter. It’s not likely by a huge factor (probably just a couple percentage points at most), but it is one way these figures belie reality.

The second, and to my mind more significant, problem with these quarterly figures is they provide no indication of whether there is any consistency of profitability. As I documented in Starting to detail forex profitability data, this is something very important to keep in mind because the reality is that most traders don’t get the job done consistently.

According to my research, only about half of all accounts (keeping to the comment measurement of the broker-reported figures) had at least 1 winning quarter during the 3+ year period of my study. Of those who had at least 1 profitable quarter, only about 43% were able to follow that up with another winning quarter in the next three month period. That means we need to take the 30% figure mentioned above and cut it in half (and then some) to get at some sense of reality where consistent profitability is concerned.

Taking it a step further, less than half of those who were able to generate multiple winning quarters were able to produce back-to-back winners more than 50% of the time. That means even among those who are part of the about 15% able showing back-to-back winning performance there is very little consistency of performance.

If we were to continue extending the consistency question to include higher levels of repeat performance we would see lower and lower percentages. In other words, it’s only a small fraction of active forex traders who consistently make money. It’s a hard game to win. Keep that in mind as you decide on how you will approach it.

After an exciting week of record-setting temperatures here in the North East and breaking news in the world currency markets, here are some of the hottest stories we’ve been reading:

U.S. lawmakers are still working toward debt ceiling resolutions as the Aug. 2 deadline looms.  Results of the European bank stress tests haven’t alleviated the overall negative market outlook, as their failure to acknowledge the high possibility of Greek restructuring led many to disregard the tests’ usefulness. Additionally, financial stocks on Wall Street lowered this week due to investor nervousness about the stress tests and U.S. debt ceiling discussions. The latest numbers show a possible resolution for the European crisis may be to exchange individual government bonds for new euro bonds backed by the credit of the entire group of nations. In other news, a recent survey by Bank of America shows that 18 percent of asset allocators are overweight cash, a number up 6 percent since May and at its highest level in a year. Weekly U.S. unemployment claims reached 418,000, worse than the expected 409,000, and are having adverse effects on the already declining USD. Meanwhile, currency day trading now accounts for 8 percent of the daily volume in the $4 trillion foreign exchange market – quite a large jump for a market that only came into existence within the past 10 years.

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.

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I've written on several occasions about the considerations involved in trading for a living or trading full-time (see this and that). Most of what I talked about in those pieces was the financial and performance aspects of it all. James Altucher, though, looks at things from the other side of the equation in his post 8 Reasons Not to Day Trade. Here's the list.

  1. Depression: Altucher suggests that most day traders will suffer a bad patch that will make them suicidal. While things may not be quite that bad, the psychological impact of poor performance can definitely be destabilizing.
  2. Overeating: I actually see this as one side of a two-sided coin. The other side is not getting enough exercise, which tends to be more my problem. Sitting at a desk for hours on end is definitely not conducive to keeping a narrow waistline.
  3. Blindness: I can speak from experience here. Staring at charts all day definitely does my eyes no good and can sometimes lead to major eye fatigue. I do try to set up my desk configuration to the least stressful setting possible, but the hours still add up.
  4. No Social Life: This one is a bit of a mixed bag. Sometimes trading war stories can improve your social life. Altucher's point, though, is that you're so focused on the markets that you really don't want the distraction.
  5. Blood Pressure: We all know how stressful trading can be. Add in a poor diet, a lack of exercise, and not getting out into the world of real people and you definitely start ticking those check boxes for risks of a heart attack.
  6. Unproductive: Let's face it. Trading can be very financially rewarding, but it's not very productive in the grand scheme of things. Traders face this question all the time. Michael Lewis talked about it in his book Liar's Poker. (If you haven't read that one, by the way, I strongly recommend it.)
  7. No Career: Day trading is very unlikely to be beneficial to any sort of career you may want when you decide you can't take it anymore. Networking is limited since you have no social life or co-workers (although Currensee certainly alters that equation!). You don't develop any marketable skills or have any demonstrable achievements you can list on a resume.
  8. It's Impossible: The odds of being a successful long-term day trader are very, very low. The burn-out rate is high for exactly the reasons mentioned above. This is true for institutional traders just as much as individual ones. You just don't see that many "old" full-time traders.

Now, of course, trading for a living doesn't necessarily mean trading full-time. I'd contend that it's better if it isn't. Certainly, there are those who are well suited to the full-time gig. I can think of a guy I worked with who's just a natural, but he also has a lot of outside interests to keep things fresh for him. He's not all markets all the time. The point is, don't feel like you have to dedicate all your waking hours to the markets. You don’t, and if you try to there are consequences.

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results.

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In the spirit of transparency I must admit that I am not, by anyone’s definition, a Forex expert. I speak the language, I read plenty of news and commentary on it, and I am surrounded by the topic all day, but let’s just say my name won’t be in lights on the Currensee Leaderboard any time soon. One of my roles at Currensee is to serve as the company’s pulse on the Forex world, which means it’s my job to dive into technical analysis and economic news, and deliver to our community the most relevant and interesting Forex articles, blog posts, and videos available. If you want to be in this “inner loop”, look no further than Twitter, where we share the best Forex analysis and news we can find.

There’s no shortage of pointers for amateur and experienced traders out there. I’ve found some of the best insights come in the form of lists. These fortune cookie-sized quick tips have a few things in common. They are typically…

  • Short and to the point;
  • Timeless (you can read them today, tomorrow, or a year from now and the point still rings true);
  • Not experience biased (whether you’ve been trading for a week or a decade, there’s something for everyone to take away);
  • And best of all, actionable!

So here are some lists I’ve found along the way.

TEN: 10 things that separate the pros from the amateurs. My personal favorite tip is to be the contrarian trader. Buy the rumor, sell the news. You know what they say about following the herd…

NINE: These 9 tips will separate yourself from the 90% of unprofitable traders. Ironically, one of the points is about taking every piece of “advice” with a grain of salt.

EIGHT: The 8 most common Forex trading myths. Stop-losses are not a sign of weakness; use them.

SEVEN: 7 tips to Forex success. Alright, so some of the tips on this list contradict themselves – take the well-marked trading path, but think like a contrarian; trust your instincts, but don’t get gushy and emotional.

SIX: These 5 reasons + 1 emotion (that's 6) are the reasons for your margin calls. Ignore them at your own peril.

FIVE: Ready to go pro? Here are 5 must-haves before quitting the day job.

FOUR: The 4 best technical indicators for new (or new to Forex) traders. No need to get elaborate with your charting skills at the beginning.

THREE: 3 challenges to conquer for trading success. Some days you’re up, some days down, and sometimes you’re just bored. There’s money to gain (and lose) in each scenario.

TWO: Divvying up the major currencies into 2 categories: risk averse and those with an appetite for risk.

ONE: Every Forex trader had to start somewhere, and they likely wish someone smarter had been around to share with them lesson #1 of trading. It probably would have saved them a lot of pips and heartache.

+ONE: One more tip for the road. Heed this warning: Do not put all your currency pairs in 1 basket. There are seven major currencies, and countless combinations. Don’t pigeon-hole yourself with one pair.

Read any words of wisdom for Forex traders recently, have it saved to your bookmarks, or (even better) write some of your own in a blog? Share it with us!

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results.

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.

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Tomorrow afternoon we're putting on a special free show, a Forex panel discussion webinar called Are you a Scalper, a Swinger, or a Holder? with John Forman, Shaun Downey and Mike Baghdady. Please join us as these experts help us explore the different timing approaches to Forex trading .  We've got some basic questions for the panel, but the main event will be opening up the lines to your questions, live!

Are you a scalper looking for the rush of that immediate and fleeting opportunity? Do you look for short-term misalignments in price and grab a few pips of profit in positions that frequently last only seconds? Are you a swinger with a more patient strategy to examine patterns over days, or weeks? Or are you a holder, keeping your positions safely stowed away until the broader and more fundamental plays can be made? If you are not any of these, you are probably someone who bets on a good night’s sleep.

Please join our expert panel tomorrow, Tuesday, April 27, at 1:30pm Eastern time:

  • Mike Baghdady, SpyGlass Trading: Baghdady is the world's foremost expert on Price Behavior and a 33-year veteran of the global financial markets, spending the tail-end of his professional career on the NYBOT trading floor until its merger with the InterContinental Exchange.
  • Shaun Downey, CQG and Currensee: As Chief Market Analyst at Currensee, Shaun brings his extensive knowledge of both the fundamental and technical Forex arena to provide commentary, insight and trading strategies to the Currensee trader network and the Forex industry at large.
  • John Forman, Thomson Reuters: Forman is a Senior Foreign Exchange Analyst for the IFR Markets group of Thomson Reuters and author of The Essentials of Trading. John is a 20+ year veteran of the financial markets. He holds an MBA from the University of Maryland and a BS from the University of Rhode Island, both concentrating in Finance.

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results.