Naive forex question

[Twiddle]

Can someone please answer this one for me? (how demanding )

In forex trading what would be the cost of doing the following. I.E, why don't people do it... or, do they do it?

With the EUR/USD being so damn low at the moment after taking a large tumble, buy quite a reasonable amount; say 10% of your total account and just leave it till it gets back to a more normal range.

It may continue to slide for quite some time, but it will not chew up the 90% left in your account. However, it will surely come back a loooooong way up from where you bought it. When it gets back to say 1.34 up from the 1.31 it is at the moment close your position at a large profit.

It seems to me that as long as you have enough equity in your account, for if it continues to fall, you cannot lose because it will definitely come back eventually.

Are there large costs involved in keeping a position open for a long period, or other reasons why this is not a viable strategy?

Apologies if this seems incredibly obvious, but to me it seems that as long as you size your buys/sell correctly in proportion to the rest of your account, it would be very hard to lose out in the long run if you could hold positions open for a long time without incurring penalties.

 

[Wysiwyg]

Interestingly if you are are playing the long term trend line from 2002 then this is the decision point for that line to hold or continue through. It looks as though 1.3200 could be the zone if it does hold.

 

[nomore4s]

Are there large costs involved in keeping a position open for a long period, or other reasons why this is not a viable strategy?

Apologies if this seems incredibly obvious, but to me it seems that as long as you size your buys/sell correctly in proportion to the rest of your account, it would be very hard to lose out in the long run if you could hold positions open for a long time without incurring penalties.

Twiddle,

The goal of trading imo is to pull consistent returns from the market and while your strategy listed above might work, it will not give you consistent returns imo.

Somethings to think about:

1. Opportunity cost - holding a large position while seeing other opportunities go begging because you capital is tied up in a bad trade. Not to mention the ongoing margin costs which will eat into an account when holding for long periods.

2. How far offside are you willing to hold the trade for? And how long? As you can see on Wysiwyg's chart it could go back under 1.00, so you're willing to hold the trade .30+ offside for a gain of 0.03?

3. Trades like that tend to cause spew stops, you spew up the position after the physiological requirements of holding a large position offside for so long gets too much. Don't underestimate the psychological demands of trading this way when the trade goes a looong way against you for a looong time.

 

[Twiddle]

Thanks for your replies. Very enlightening.

 

[vincent191]

You forget the age old advice to have a stop loss on any derivative trading. If the market goes against you, your long term plan will become very short term when you reach your stop loss.

 

[nomore4s]

You forget the age old advice to have a stop loss on any derivative trading. If the market goes against you, your long term plan will become very short term when you reach your stop loss.

Vincent, that was the point of Twiddles plan - no stop loss just hold until the profit target is hit, no matter how long that takes.

 

[Twiddle]

Vincent, that was the point of Twiddles plan - no stop loss just hold until the profit target is hit, no matter how long that takes.

Yeah, that was the general idea.

With certain things it is just a matter of time, just wondering what, apart from lost opportunity with your cash being tied up, is there to stop holding positions on such things for a long time. Interest on the margin is probably chief among concerns.

 

[Wysiwyg]

With certain things it is just a matter of time, just wondering what, apart from lost opportunity with your cash being tied up, is there to stop holding positions on such things for a long time. Interest on the margin is probably chief among concerns.

Examining your thought train here shows you have strong preconceived ideas of future price action. In reality, would you follow through with the plan to hold indefinitely if need be? It can be done! You can do anything! With this strategy you must have a comfort zone, yes? An insurmountable tolerance of being -$$. You have announced desire to go long on the EUR/USD because

However, it will surely come back a loooooong way up from where you bought it.

Idealistically with your strategy, this scenario has no time limit which makes it all the more probable. 1 month, 1 year or 5 years? Only one way to find out.

Maybe you could take a 14 month holiday after the currency entry as in the following Brett Steenbarger (fascinating writer) attachment.

Their investment was conceptualized on one timeframe

 

[macca]

Hi,

In view of the current dramas with the PIIGS I think you would be very brave to go long the Euro with the intent of riding out the storm

There has always been doubts about the feasibility if individual countries combining to have one currency. The inherent nature of individual countries is always going to be a sticking point. The Germans view the social welfare largesse of Greece as being the cause of Greeces problems and are furious that their more efficient and hard working attitude is to be punished by giving money to a profilgate spendthrift who won't take the necessary actions to solve the problems they have created by their own actions.

It has become a distinct possible that the Euro may collapse completely as a bad experiment.

My thoughts only, do your own research

 

[Twiddle]

Examining your thought train here shows you have strong preconceived ideas of future price action. In reality, would you follow through with the plan to hold indefinitely if need be? It can be done! You can do anything! With this strategy you must have a comfort zone, yes? An insurmountable tolerance of being -$$. You have announced desire to go long on the EUR/USD because Idealistically with your strategy, this scenario has no time limit which makes it all the more probable. 1 month, 1 year or 5 years? Only one way to find out.

Maybe you could take a 14 month holiday after the currency entry as in the following Brett Steenbarger (fascinating writer) attachment.

As things have gone I probably would have closed the position already. The Euro is up massively on when I posted the original post, and it would have been a very substantial profit with no stop loss in place. The only negative would have been 2 days of margin costs.


Basically what I am seeing from my trading so far, it that stops are hurting me. The vast majority of the time it is just a case of waiting a little while longer and the trade would have hit my limit and been profitable. So far I am up a large amount after 12 days of trading a 100k demo account (Yep, i realise that doesn't mean much, but ya gotta start somewhere ), but the vast majority of my losses shouldn't have happened when taken in the bigger context.

This is obviously an indication I do not know what I am doing yet, and I need to understand more fully that taking losses on a stop is part of the process, even when they have been worked out with an optimal system.

However, I am wondering if there really is a time and a place for no stop losses?

 

[nomore4s]

As things have gone I probably would have closed the position already. The Euro is up massively on when I posted the original post, and it would have been a very substantial profit with no stop loss in place. The only negative would have been 2 days of margin costs.


Basically what I am seeing from my trading so far, it that stops are hurting me. The vast majority of the time it is just a case of waiting a little while longer and the trade would have hit my limit and been profitable. So far I am up a large amount after 12 days of trading a 100k demo account (Yep, i realise that doesn't mean much, but ya gotta start somewhere ), but the vast majority of my losses shouldn't have happened when taken in the bigger context.

This is obviously an indication I do not know what I am doing yet, and I need to understand more fully that taking losses on a stop is part of the process, even when they have been worked out with an optimal system.

However, I am wondering if there really is a time and a place for no stop losses?

Twiddle, this is part of the beginners cycle. Most beginners tend to have a great run early, start thinking trading is easy and then actually begin trading with no consideration to the risks and then proceed to lose a lot of money very quickly.

If I had a dollar for every time a trade stopped me out to the cent and then went on to hit my target I'd be a very rich man, lol.

This is part of trading and I just move on to the next trade because I know if I stick to my plan and control my risks I will be profitable in the long run.

The problem with trading the way you described is you only need 1 trade to go against you and you can give up half or more of your account, and trust me it will eventually happen - probably straight after going live with real money.

The only time I don't use stops is on my long term shares that I buy with my own money but even then I do have a get out point. I would never ever trade any sort of leveraged instrument without a stop in place.

 

[Twiddle]

Twiddle, this is part of the beginners cycle. Most beginners tend to have a great run early, start thinking trading is easy and then actually begin trading with no consideration to the risks and then proceed to lose a lot of money very quickly.

If I had a dollar for every time a trade stopped me out to the cent and then went on to hit my target I'd be a very rich man, lol.

This is part of trading and I just move on to the next trade because I know if I stick to my plan and control my risks I will be profitable in the long run.

The problem with trading the way you described is you only need 1 trade to go against you and you can give up half or more of your account, and trust me it will eventually happen - probably straight after going live with real money.

The only time I don't use stops is on my long term shares that I buy with my own money but even then I do have a get out point. I would never ever trade any sort of leveraged instrument without a stop in place.

Thanks for that, I think that is exactly what I needed to hear.

I have had a few trades run away from me already and have had to cut them off manually when I was certain they were not coming back. Very hard to do, a lot easier for it to happen automatically, and earlier.

 

[keegan]

Basically what I am seeing from my trading so far, it that stops are hurting me.

However, I am wondering if there really is a time and a place for no stop losses?

im running it without stoploss since march this year as i want to try to capture the high and low(around 30000 pips) and wondering whats the profit anually would be!

 

[CFD]

According to you, the profit would be 30,000 pips.

The only people who did not use stops, are pros and ex traders. IMHO

May I suggest the answer is in understanding draw downs.

 

[Wysiwyg]

im running it without stoploss since march this year as i want to try to capture the high and low(around 30000 pips) and wondering whats the profit anually would be!

Presently down over 1000 pips. Is this hard to stomach?

 

[keegan]

@CFD, i try to understand the drawdown, im still in learning mode with $500 capital (see my blog).

@Wysiwyg, 1000 pips down maybe for me abit much but i think i can cope with it as the trade is really small.