Forex Daily Trading Range
Forex Day Trading – 2 Logical Assumptions Believe Them and Lose!
There are two common assumptions made by forex day traders and scalpers and if you believe them, you will simply see a 100% equity wipe out and there enclosed. These are common errors and if you want to win at forex trading, you need to avoid them…
Lets look at both and there in no order of importance there both important!
1. Volatility in a day is NOT random
Day traders believe that you can calculate support and resistance levels within hours and key off them, to make profits.
The problem is the data within any daily session is totally random and you cannot calculate, or see where prices may go next. This is pretty obvious if you think about it and is simply due to the way the price is made.
The price is a reflection of millions of traders, all around the world, who all have different skills, aims and are all governed by their emotions to varying degrees. It’s a vast mass and what these traders decide in a few hours is anyone’s guess and if you try and calculate it you will lose.
All volatility is random and technical analysis tools that work in longer time frames, don’t work in these short time frames. The only way you will win is, if you are lucky but luck runs out at some point and your equity gets destroyed.
If that’s not enough, consider also that forex day’s traders and scalpers break the fundamental rule of investment which is:
2. Run Your Profits to cover inevitable losses
Day trading is based upon the logic of keeping stops tight and risk low.
Nothing wrong with that if the data is valid and lets you calculate the odds.
However, we know already the data isn’t valid and your more than likely going to get stopped out as you have the stop within the daily range – this means you are going to lose the overwhelming amount of times.
The risk looks small but the odds of the loss are high.
So you need to get some profits to compensate.
In short term trading, you need to run your profits but this is totally against what day traders do – they bank on taking lots of small profits and NOT running them.
So the odds are going to give them losses most of the time and their going to have a minority of small profits.
The above simply means – a wipe out.
You may say – well I have seen lots of day traders who make money and yes you have; there are many vendors who produce track records, the catch is – there not real! There paper money.
Look for this warning on any day trading system sold with a track record of profit:
“CFTC RULE 4.41 – Hypothetical or simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown”.
So there you have it – the profits simply are made up knowing past data.
Now short term trading is a good story and sounds good in theory – but in practice the facts show it doesn’t add up and all the vendors who tell you they make money only do so on paper.
So if you try day trading systems or strategies (they can be as clever as you like), but with the odds against you, your bound to lose – don’t try it!
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