TheRumpledOne wrote:http://www.forex.nawigator.biz/dyskusje/viewtopic.php?t=8192
Gracze intraday to frajerzy? Załączam wyliczenia matematyczne z książki po angielsku, że lepiej grać raz na dzień - swing trading.
EVENING THE ODDS
Trading can be difficult, and in an effort to make it easier, some traders
resort to taking very quick exits. "It's hard to earn 100 pips," goes the
rationale, "I'll just try to make 10 pips on each trade." It seems to make
sense; surely, it is easier to earn 10 pips than it is to earn 50 or 100 pips.
The trader seeks to win by playing it safe, which would seem to be a commendable
trait in the trading world.
TAKE CONTROL OF YOUR TRADING DESTINY
What if I told you that instead of making things easier, this trader is in
fact making his life more difficult? In order to understand why, we need to
delve a little deeper into game theory.
THE HOUSE HAS THE EDGE
Imagine a roulette wheel in a casino. You walk up to the table and place a
bet on either red or black. What are your chances of success?
If you've never played roulette, you might think the odds are 50?50.
After all, half of the numbered pockets are red, and the other half are black,
right?
Wrong. In addition to the red and black pockets, there is at least one
pocket that is neither red nor black. This "zero" pocket tilts the odds
slightly against our player.
In European roulette there is only one zero pocket, giving the house a
slight advantage. On this table, the odds are about 53:47 against our player.
American roulette wheels have two 0s, zero and double zero, and this increases
the house advantage to about 5.3 percent. This further stacks the
odds against our player, reducing his chances for success.
In the world of forex trading, the zero pockets represent the spread.
The odds are always going to be at least slightly in favor of the "house,"
which in this case is the market maker. The wider the spread, the more
"zero pockets" the trader must overcome. Just as each additional zero
pocket lowers the roulette player's chances of success, every additional
pip in the spread lessens the trader's chances of success.
MAKE THE PLAYING FIELD BIGGER
In the forex market, the house determines the spread, which is the equivalent
of the "zero pockets" in roulette. We have no control over the
spread?it is determined by the market maker alone, just as the casino
determines the number of zero pockets on a roulette wheel.
Ah, but what if we could control the number of red pockets and black
pockets? Suppose we were to greatly increase the number of red and black
pockets on the roulette wheel, and at the same time keep the number of
zero pockets steady.
What effect would this have on the odds? The odds of winning at
roulette would improve, because the zero pockets wouldmake up a smaller
percentage of the potential outcomes.
As long as there are zero pockets on the wheel, the odds will never be
in our favor. But by adding additional red and black pockets to the wheel,
The Forex Playing Field
we would lessen the casino's advantage and push the odds closer to 50?50.
The more red and black pockets we add, the better our chances become. In
a sense, we would be making the wheel?which is in this case the "playing
field"?bigger.
Of course, we can't add pockets to a roulette wheel. Casinos are too
smart to allow us to dilute their edge. While that edge is not overwhelming,
it is enough to guarantee that the casino will win more often than they will
lose, over a large enough sample of spins.
But in the world of forex trading, we can increase the size of the playing
field, and thereby improve our chances of trading success. And unlike
in a casino, we will not be forcefully removed from the premises for doing
so!
How is this done? We make the playing field larger by using wider exits
and stops, by using longer time frames, and by trying for larger gains.
You've seen the techniques outlined in this book, so let me ask you this:
Am I ever shooting for a 10-pip gain?
BUT THE OTHER TRADING INSTRUCTOR
SAID. . .
No, but I know that many traders are seeking exactly that. In fact, some
prominent trading instructors are teaching their students to seek only a
small 10- or 15-pip gain before exiting the trade. What is their motivation
for teaching people to trade this way?
Well, perhaps your "trading coach" has asked you to open an account
at a particular broker or market maker. If so, you may have signed an "introducing
broker" waiver that allows said trading coach to collect a small
cash payment every time you place a trade. This is his reward for introducing
you to the market maker.
If you place just a few trades, your trading coach collects just a little
money, but if you place many trades, the instructor will be handsomely
rewarded. So, it's in the trading coach's best interest (and the market
maker's best interest) to have you placing many trades, even though it may
not be in your best interest. Think about that the next time a so-called
trading instructor tries to convince you to shoot for 10 or 15 pips per trade.
LET'S DO THE MATH
What are the odds of success on a trade with a small target? The following
example should give the short-term trader an idea of exactly what it is he
or she is up against.
TAKE CONTROL OF YOUR TRADING DESTINY
Let's assume for the purpose of this example that we are trading a currency
pair that has a 3-pip spread, since a spread of that size is very common
in the forex market.
Our trader just wants to gain 10 pips. That should be easy, right? It's
understood that the trader will lose the spread (3 pips) upon entering the
trade. So, in order to turn a profit of 10 pips, the trader actually needs the
exchange rate to move 13 pips in his or her favor:
10 + 3 = 13
Now that we know what is required to create a winning trade, let's see
what would have to happen to create an equivalent loss. This is how we
will determine the odds of success or failure.
In order to generate a loss of 10 pips, the trader would only need an
adverse move of 7 pips. This is because a loss of 3 pips is incurred immediately
upon entering the trade, again due to the 3-pip spread.
10 − 3 = 7
We've determined that our trader needs a positive move of 13 pips to
gain 10 pips, but an adverse move of just 7 pips will result in an equivalent
loss of 10 pips. The "raw odds" of 10-pip win versus a 10-pip loss for this
trade can be expressed as:
13/7 = 1.857 : 1
The odds of success in this case are 1.857:1, or nearly 2:1 against. That's
a real eye-opener, isn't it? Now you know why it's so difficult to make
money trading for small gains?the playing field is too small! This is the
equivalent of betting "red" on the roulette wheel, when nearly two-thirds of
the pockets are either black or zero pockets.
We can certainly improve the odds of any trade by using good strategies
and solid risk management, but it's hard to see how an individual can
overcome these initial "raw" odds on a consistent basis. If you've tried to
trade this way and failed, now you know why. You're making the market
maker rich, and you might be making an introducing broker rich, but
chances are you are one of the many forex traders who lose money.
CHANGING THE EQUATION
How can we rearrange the odds so that we can have a better chance to win
at forex trading? How can we level the playing field? By making the playing
field larger. You see, if we are aiming for larger gains, the spread becomes
The Forex Playing Field 219
a less significant portion of the trade. It's the same as adding more black
and red pockets to the roulette wheel; unlike roulette, we can choose the
size of the playing field in forex trading.
Let's review the earlier trading situation, only this time we'll make the
playing field larger. Once again, we'll assume a spread of 3 pips, only this
time the trader will be trying to gain 100 pips instead of just 10 pips. In
order to turn a profit of 100 pips, the trader actually needs the exchange
rate to move 103 pips in his or her favor:
100 + 3 = 103
In order to generate a loss of 100 pips, the trader would only need an
adverse move of only 97 pips. This is because a loss of 3 pips is incurred
immediately upon entering the trade.
100 − 3 = 97
We've determined that the trader needs a positive move of 103 pips to
gain 100 pips, but an adverse move of just 97 pips will result in a loss of 100
pips. The "raw odds" of 100-pip win versus a 100-pip loss for this trade can
be expressed as:
103/97 = 1.06 : 1
The odds are now much better, as they are closer to 50?50. As we said
earlier, as long as there is a spread, the odds at the beginning of every trade
will be less than 50?50. However, if we are using good trading techniques
and risk management, or if we are collecting interest on the trade, we can
overcome these slightly negative odds.
Now I'm not saying that you have to shoot for gains of 100 pips or
more on every trade. The point is to understand that when the playing field
is larger in forex trading, the odds of success improve considerably. Also,
traders who are aiming for greater gains tend to hold their trades longer,
and consequently they enter trades (and pay the spread) less frequently.
Your market maker and your introducing broker may love you less,
but your account balance will appreciate it. In the end, you are the only
one who either enjoys the gains or suffers the losses in your account.
WHY DOESN'T EVERYONE DO IT?
So why doesn't everybody trade for larger gains? Why do so many traders
fall into the trap of trading against staggering odds? There are a couple of
220 TAKE CONTROL OF YOUR TRADING DESTINY
possible answers:
1. They don't understand that they are stacking the odds against themselves.
2. They have harmful preconceived notions about the nature of trading
itself.
The problem is that trading isn't always what we believe it to be, or
wish it were. I know exactly what I would like trading to be, and here it
is: I'd wake up in the morning, trade for an hour, make a ton of money,
close my positions, and do whatever I please for the rest of the day. Trading
would be like a video game that we could play anytime we please. Themore
we play the game, the more points we score. We could be rich beyond our
wildest dreams, with minimal effort.
That would be ideal in my opinion, but you may have noticed that these
strategies do not allow for this. That's because strategies need to work
in the real trading world, not in some fantasy world of our dreams. The
problem is that many traders don't know that their misconceptions about
trading are not based on facts. They are trading a market that exists in their
dreams, not in reality.
HUGE GAINS WITH MINIMAL EFFORT!
How do we acquire counterproductive attitudes toward trading? My guess
is the worst culprits are infomercials that tout huge gains in just minutes
a day. You may have seen these long-form commercials, often designed to
appear as legitimate television shows, where wide-eyed investors proudly
proclaim that they made huge gains with minimal effort.
Huge gains with minimal effort.
It sounds good, and that is no coincidence. You are being told exactly
what you want to hear. Instead of telling you what you'd like to hear, I'm
going to tell you the truth?trading is hard work. Short-term traders are
stacking the odds against themselves. There is no such thing as a huge gain
with minimal effort.
When I explained that we need to make the playing field larger, and
thereby hold our trades longer, this was probably not what you wanted to
hear. Why is that? Because we want huge gains with minimal effort.
Why are the airwaves filled with promises of huge gains with minimal
effort? Because salesmen know exactly what you want to hear, and they
know how to get you to write a big check. Whenever someone tells you
The Forex Playing Field 221
exactly what you want to hear, run in the other direction as quickly as
possible.
WHAT WE CAN LEARN FROM THE "SMART
MONEY"
Think about the way so-called "smart money" approaches trading in this
market. Do hedge funds and institutional traders chase after 10- or 15-pip
gains? Of course not?they understand the dynamics that are at work here.
Not only are they not interested in 10-pip gains, they're not chasing after
100-pip gains either. Many of these "big fish" are only satisfied with gains of
thousands of pips?trades that push the odds of success as close to 50?50
as possible.
Not only do the institutional traders understand the value of playing
on a larger field, they set up their trades so that they can collect interest
to boot?thereby increasing their odds to better than 50?50! If this were
a casino, they'd be tossed out immediately. Now you know why they are
called the "smart money"!
