There is over $480 trillion in the markets worldwide (Walker, 2008)! Many people try to find their piece of the pie learning to day trade; but the risky connotation and the reportedly low long-term success rate makes one question if day trading is really all that it is made out to be, or is it a scam?
Day trading is the buying and selling of various financial instruments with the goal of making a profit from the difference between the buying price and the selling price (Milton, 2008). Such financial instruments include futures contracts, options, currencies, and stocks. It is really no different than if you were to purchase a home for a reasonable price and sell it ten years later for more then you paid, except that when day trading, transactions can take as little as a few seconds. Most criticism comes from the fact that day trading has the potential to make a lot of money very quickly. Many see this as a get-rich-quick-scheme; others accept the risk and eventually learn that this presumption appears to be true. Only a select few learn to win trading and find long-term success. So, what makes these select few different from the majority who end up losing money? The answer, “probabilities”.
You see, those who are able to learn to win trading know something about the markets that many people do not understand. This well-kept secret is a simple rule of probabilities, and successful traders have become proficient in using it for their profit. The rule of probabilities simply states that events that have probable outcomes can produce consistent results, if you can get the odds in your favor and there is a large enough sample size.
Let me illustrate how this can work. I don’t know if you’re familiar with the uncertain, unpredictable games of gambling. People play it because they feel they have a “chance” to win, however slim that chance may be. If gambling is so “uncertain”, then how is it that casinos can be so profitable in a game of uncertainty? Well, casinos have applied the rule of probabilities to make it work for them. Fore example, the game of Blackjack is a highly unpredictable game; however, the rules of the game give the house a 4.5 cent edge on every dollar that crosses the table. With the odds in the house’s favor, they aren’t concerned about which hands they win and which hands they lose. Taking into account all the big and small wins and losses, if $100 million dollars crosses all the blackjack tables in a casino during one year, the house would net $4.5 million.
Trading is literally a game of probabilities because there are so many different variables affecting a given price at a given time that it leaves the market essentially unpredictable. However, the very same rule of probabilities can be applied to day trading with similar results as that of the casino. Most people do not understand or learn how to make probabilities work for them, which is why so many end up losing money. The key is to figure out what gives you an “edge” on the market. What is it that can put the probabilities on your side? It may be a certain pattern in market movement, an indicator, reaction to certain types of news, or following momentum or volume. Whatever it is, it should be tested first. Learn to trade the signal on a simulator calculating its statistics over a large number of trades. Once you find the signal that works for you, you can relax because the rest is easy. Trade the signal “every time” you see it. You may win, you may lose… but the key is where you end up over the long run. If you trade a live account the same way you tested your signal on the simulator, you too will profit because you’ve found a way to put the “odds” in your favor.
Learning to win trading is not as difficult as the majority of people think it is; and maybe that is what disguises so well the underlining difference between the few successful traders and the many unsuccessful ones. Of course there is more to trading than just probabilities, but if you can learn and apply the rule of probabilities, you will be well on your way to a successful future in day trading.
By: Jared P Erni
Posts Tagged ‘Successful Traders’
Day Trading – A Scam?
March 7th, 2010Is it Possible to Be a Forex Millionaire?
January 26th, 2010
Well, of course it is! There are new forex millionaires everyday. The bad news is that 95% of forex traders fail to even make money. So the chances of you just making money trading forex are against you, much less becoming a millionaire. So what’s the secret? Why is it that so many people fail and so few succeed.
Well, lets take a look at this logically. When so many people are failing at trading forex, why not just trade the way the successful traders do? I know that sounds like a no-brainer, but why is it that so many traders don’t think about that? The majority are using the same lagging indicators that have been proven to show no forecasting benefits.
If there is one major contrast between the pros and amateurs, its that the majority of the pros don’t need all the bells and whistles that the amateurs just love. If you read many trading journals, magazines, newspapers, you’ll notice most pros mention they don’t even use indicators. They solely rely on price action to tell them when to buy and sell a currency. To those that have only traded with indicators, this may seem like a strange method, but it’s really one of the oldest forms of technical analysis and has been traded successfully way before stochastics were even invented. People like Jesse Livermore became trading legends in the early 1900s by being on the market floor and trading based on the movements of the price. He didn’t even have the privilege of looking at a chart.
So it is most definitely possible to be the next forex millionaire. All you have to do is stop following the herd and learn how to properly read the forex market.
By: Jim Buhs
Forex Education – These Character Traits Are Admired But If You Have Them in Forex You Will Lose!
December 30th, 2009
Here I am going to outlines some character traits which are admired in society as a whole but in forex trading will ensure you lose. Most traders simply cannot adapt from the traits needed in everyday life to succeed, to the unique traits you need in forex. If you don’t want to join the 95% of losers read on…
1. Consulting an Expert
If your computer breaks down or your car, you consult an expert. After all, you cant do everything – but in the forex market this leads to disaster. There are many experts and forex robot vendors, telling you to follow them but they will all see you lose.
The reason is forex trading stress comes from within and is based on knowledge, which gives confidence which leads to discipline. All successful traders know they are on their own and only they can give themselves success – but for the effort they have to put in the rewards can be life changing.
2. Trying to Be to Clever
You get many people who are clever and think because they are they deserve success but being clever wont help you, as forex trading is essentially simple and you don’t need to be.
This is proven by the fact that despite all the advances in news, forecasting, the power of software and PC’s the ratio of winners to losers remains the same as 50 years ago.
If you try and be too clever your trading system will have too many elements to break. Keep it simple, is a phrase which is very apt in forex trading.
3. Hard Work is What’s Needed
This is absolute rubbish.
There is no correlation between hard work and success in forex trading.
Sure in normal life you may get paid by the hour and the more hours you work, the more money you make but not in forex trading.
In trading you are judged on how good your marketing timing is with your trading signal and that’s it. It can take you all day or 10 minutes, it’s the end result in terms of profit on which you are judged.
You can put together a robust simple system in about two weeks and then spend less than 30 minutes a day on your trading and enjoy success.
In forex trading its all about working smart in the right areas rather than hard.
4. Being to Sociable
Since man first walked the earth he has sought the safety of groups and this has helped him survive and prosper over the centuries. Most people like to agree with the majority and not be on their own, it’s our nature.
Of course in forex trading the bulk of traders lose (95%) so you need to isolate yourself and be on your own. Most people can’t do this and fall victim to their emotions and want to agree with the news and other traders.
Most successful traders don’t care about being on their own, as they know if they want to make money it’s the best place to be.
A Different Mindset for Success
When you start trading forex you need a completely different mindset than you do in normal life and people fail to get to grips with the 4 points made above – but to win you must understand there significance.
If you understand the above, you will know what’s needed to succeed and can enjoy currency trading success.
By: Kelly Price
