Factors Determining Profitability in Forex Trading

It is of great importance to understand and apply the factors that influence your level of profitability in Forex trading if you want to earn the optimal return on your trading efforts.

Some of these factors that we will now discuss have a direct effect on profitability, e.g. if the specific factor is doubled the profits will also be doubled, and other factors have an exponential effect on profits, which could quadruple profits if the specific factor is doubled.

The situation is somewhat complicated by the fact that these factors normally do not operate independently, but are influenced by, or have influence on, other factors. This means that most of the time one has to find the optimal trade off between two or more than one of these factors.

Let us look first at the factors that have a DIRECT influence on your profits:

  1. Lot Size – also determined by:
    1. Equity or Account Balance
    2. Risk percentage
    3. Stop Loss

Lot size should be determined by your maximum risk factor, e.g. 2% of equity or account balance, the size of your Stop Loss and the amount of your equity or account balance. Therefore if you double your risk to 4%, or double your account balance, or cut your Stop Loss by 50% you will also double your profits.

So for example if you have an account balance of $5000 and you take a maximum risk per trade of 2% and your Stop Loss is 50 pips, your lot size should be 0.2 – or two mini lots. If you trade on a 1:1 Risk : Reward you will make a profit of 50 pips x 0.2 = $50. Now double your risk % OR account balance OR halve your Stop Loss to 25 pips, and your profit will be doubled to $100 – a direct relationship.

Now, of course, if you double your risk or halve your Stop Loss you may experience greater losses, so that is why it is better to look at rather increasing your account balance / equity if you want to increase your profits. You risk should preferably be fixed at a certain percentage and your Stop Loss should be determined by the system you trade, volatility, etc.

  1. Number of trades per month

Obviously if you are taking 100 trades per month and have a 70% win rate, you can double your profits if you double the number of trades trades to 200 trades per month – IF you keep to the same win rate. This is only going to be true if the quality of the trades taken overall stays the same. You can try to achieve this by trading more currency pairs, but if the quality of your trades is compromised by forcing additional trades to increase the number of trades per month you will not enjoy the direct doubling of your profits as expected. So if your winning percentage was 70% when having the 100 trades per month, and now the winning percentage is reduced to 60% when you are taking 200 trades per month the objective will not be achieved, since the net profit will be the same as with the 100 trades at a 70% win rate.

Now let us look at the factors that have an EXPONENTIAL effect on your profitability:

            3. Risk : Reward

We will define “Risk” as equal to the size of the Stop Loss, and “Reward” as equal to the size of the Take Profit. That means if you have a 1:1 Risk : Reward your Stop Loss and Take profit is equal in size. Now if we double the Risk : Reward to 1:2 the profit will increase exponentially with 400% – IF the same win rate is maintained. And that is the crux of the matter. Normally when you increase the size of the Take Profit your win rate will be reduced because it is obviously more difficult to achieve a profit target of 100 pips than it is to achieve a target of 50 pips. So the optimal point will have to be found by juggling the Risk : Reward until the point of maximum profit is achieved. This will be different for different trading systems.

           4. Win Percentage / Win Rate

The second factor that has an exponential effect on profitability is that of the win percentage, or also called the win rate, which measures the number of trades in profit out of the total trades taken as a percentage. By increasing the win percentage by e.g. only 10% you can increase your profits by 100% – in other words double your profits.

A higher win percentage can often be achieved by taking only the highest quality trades with the highest probability of being winners. This could mean a lower number of trades that are taken, which could influence your total profit for the month.

Summary:

In the end it is required that one takes all these factors in consideration to find the optimal combination of factors that will deliver the highest profit. This will take some optimization in platform software like Metatrader 4 and will be different from system to system.

This article attempts to give some guidance of where you should look to increase your profitability.

Below is a table below to show how different combinations of these factors determine profitability.

Capital % Risk of Capital Reward (Risk=1) % Winning Trades # of Trades / Month   Gross Profit / Month Gross Loss / Month Netto Profit / Month % Growth / Month
1000 1 1 60 40 240 160 80 8
1000 1 3 30 40 360 280 80 8
1000 1 1 70 40 280 120 160 16
5000 1 1 70 40 1400 600 800 16
1000 1 2 50 40 400 200 200 20
1000 1 3 40 40 480 240 240 24
1000 1 1 80 40 320 80 240 24
1000 1 1 70 80 560 240 320 32
1000 2 1 70 40 560 240 320 32
1000 1 2 60 40 480 160 320 32
1000 1 3 50 40 600 200 400 40
1000 1 2 70 40 560 120 440 44
1000 1 3 60 40 720 160 560 56
1000 1 3 70 40 840 120 720 72
The Effect of Improving Win Percentage
1000 1 1 60 40 240 160 80 8
1000 1 1 70 40 280 120 160 16
1000 1 1 80 40 320 80 240 24
The Effect of Improving Risk : Reward
1000 1 1 60 40 240 160 80 8
1000 1 2 60 40 480 160 320 32
1000 1 3 60 40 720 160 560 56

 

The Three-Way Approach to Successful Forex Trading

Most new traders approach Forex trading in an unplanned and unstructured way. No wonder so many of them lose their money and never become successful. Forex trading is a demanding practice that requires much more effort that includes a structured approach to become consistently profitable. There are 3 very critical approaches or issues that should be mastered before any new trader can be successful in the long term. Here are they:

  1. Business Approach:

When you have expectations that through Forex trading you will be able to generate extra income or even in the longer term make your living from Forex trading, you are an entrepreneur that is starting a new business and should also apply business principles to your trading. That means you will have to implement the following practices:

  • Create a Business (Trading) Plan with a Vision and Goals as well as Objectives of how you are going to achieve your goals. The objectives should have deadlines with Key Performance Indicators (KPI’s) to measure if you are progressing with and achieving these objectives. E.g.

Objective: Achieve 90% accuracy in correctly trading my new system – deadline: 2 months

KPI: Percentage accurate transactions performed

  • If you are not making satisfactory progress on achieving your objective(s) you should analyse your trading and detect what the problem(s) is/are and then implement rectifying actions.

In general you should monitor your trading and when you are not achieving your profit targets you should first stop and analyse your trading in all aspects and discover the source of the problem and then implement actions to rectify the problem. Then monitor if these rectifying actions have the desired effect, and if not go back and find if your analysis was accurate, and if so, if your actions that you implement to rectify the situation are the correct approach.

  1. Scientific Approach:

When you trade a specific Forex trading system you should have the fullest confidence that this system is profitable under most market conditions, so that when you lose a few trades in a row you know that this is only a temporary situation and that in the long term you WILL be profitable. This confidence can only come when the system has been thoroughly tested and optimised. To achieve this one has to program the system in a language that can be tested and optimised in e.g. the Strategy Tester of Metatrader 4/5. Thorough testing over long periods should be done with monitoring some of the following statistics to see what the quality of the system is:

  • Profitability over a period
  • Maximum Drawdown
  • Profit Factor
  • Value of Average Profit trades vs Average Losing trades
  • Maximum losing trades in succession
  • Percentage Winning Trades
  • Calmar Factor
  • Recovery Factor
  • Volatility or % Std Deviation
  • Etc.

Parameters should be optimised to deliver maximum profit, and the system should be studied in different market conditions to see when trading should be suspended if the market is not suitable.

Your own trading statistics should be monitored and studied to see if your manual trading at least perform as well as the testing, and rectifying actions implemented.

The system should be retested and re-optimised on a regular basis to adapt to new market conditions and to see if it is still profitable when traded correctly.

Under this heading we can also place things like Risk and Money Management, correct Stop Loss and Take Profit positioning, etc.

  1. The Art of Trading

Even if all the above is in place it may not automatically mean you will be successful, because there is a third critical success factor that should also be in place, which we will call the Art of Trading.

This aspect takes long experience to master. There is no shortcut or specific set of rules that must be implemented. The different issues involved here are:

  • Skills of trading. No two exact situations will ever appear when you are trading. It takes long experience to know how to act slightly differently under different circumstances. Keep a journal of all your trades and review and learn from them.
  • Psychology of Trading: Your emotions can interfere with your trading and cause you to make stupid mistakes. It takes long practice to have your emotions under control and trade mechanically.
  • Identifying Patterns: Once again it takes a long time with charts to start to correctly identify certain patterns printed by price action that helps you to make more informed and correct decisions.

Well there you are. If you can implement these three practices I guarantee profitability. Forex trading is NOT a gamble – it is a business approached in a scientific and emotionally stable way.

P.S. We teach these approaches in our Forex Trading Master Class as seen on www.forex-training.co.za

Alarming Marketing Methods Used by Certain Forex Training Companies

I have been attending certain presentations by a company called Knowledge to Action where its founder Greg Secker was one of the presenters. These presentations are billed as free Forex seminars and promises to teach you how to trade profitably, but they are pure marketing events to get people to enrol into their expensive courses. Here is an extract from one of their marketing brochures, where they give the false promise that they will share their strategies that took years to develop:

K to A

The alarming part is how people are mislead about how easy it is to become wealthy in Forex trading. Greg Secker himself uses every opportunity to show pictures of his expensive sports car (Ferrari?) his house and how he trades from a helicopter. One of the presentations uses a canned cherry picked trade that was recorded previously that shows something like how £13,000 is made within 3 minutes! There is nothing about the size of account one has to have to do such trades with a 1% of your equity as they recommend in their courses – or that there were most probably many losing trades before and after that trade. Furthermore, other presenters speak mostly about how much money they and their family had made. Not a word that Forex trading is difficult and can take a long time before you can become profitable, and that most people fail.

The cost of the beginner’s course is more than $2000 for two days of training (at least in our country) and some Skype mentoring afterwards for an hour or so. (in comparison my two day course cost only $490 and gives a hundred times more information – I know because I have their training material in my possession given to me by a disgruntled student of theirs) No word is said of the fact that the students also have to pay +- $149 every month for using the platform e-Signal which is required to trade their systems. (We use Metatrader 4 which is available free) Also they want you to open a live account (with their recommended broker ETX) which in my opinion is far too soon.

During the course three very simple systems are taught called Forex Income Generator, Ultimate Forex Sniper, and Ultimate Forex Pivot. There is also a simple bonus system called Snap Back. The most popular seems to be the Forex Income Generator. I had a look at these systems and it is my opinion that there is nothing special about them, and that one can in fact find similar systems free of charge on the Internet. (As a matter of fact you can even download the actual systems that they teach from the Internet) I certainly would not pay that high fee for these unimpressive systems. Search the Internet and you will not find many people that claim to make any profits from these systems.

This is also just the start of the marketing process. Afterwards you are contacted continuously to convince you to enroll in more advanced courses at double the cost. As a matter of fact people report that once they have your contact details they never stop their high pressure marketing.

There was some talk that the Financial Services Authority (FSA) in the United Kingdom were investigating complaints against Knowledge to Action made against their marketing methods, but I could not ascertain this because the FSA has now become the Financial Conduct Authority (FCA) and the FSA records has become part of the National Archives in Britain.

Nevertheless, I have been present more than once where I could monitor the way they do their marketing and also have had feedback from numerous other people, so I believe I have reason to be very concerned that Knowledge to Action is more interested in marketing their expensive low value Forex courses than creating successful Forex traders. This is further supported by the fact that they will have more than 30 students in one class. Now there is NO WAY you can give people proper attention when you have that large a class.

People with some knowledge of this company’s marketing methods and/or the success or not of their systems are invited to comment on this article.

Thank you for your time!

P.S. We still offer the least expensive with maximum quality material Forex classroom training at www.forex-training.co.za in the world. Soon to be converted into video and webinar training for a worldwide audience.

Forex Trading Competitions are Marketing Ploys that Promote Bad Trading

Forex brokers market their services by staging Forex trading competitions that offers price money deposited in one of their own accounts for those that win the trading competitions. Many of these competitions have some restrictions on withdrawal of the winnings. Here are some examples of them:

  1. The winnings cannot be withdrawn for the first three months and the winner must make twenty opening trades before being allowed to withdraw their winnings.
  2. Any prizes will be added into customer’s trading account and can be withdrawn subject to the following withdrawal requirements; In order to withdraw your winnings; you must have a trade volume of 5000x your winnings. For example: For every $1 of the prize, you must have a trading volume of $5000 in order to be eligible for withdrawal.

Obviously it will be to the broker’s advantage if the winners of the price money either trade heavily after they have won the competition, or if the broker is a dealing desk broker or market maker to win back that price money if the trader loses. In this way they at least have an opportunity to recuperate the prize money that they have paid out.

Therefore, in order for a broker to win back their prize money the rules (or lack of rules) in these competitions favour the high risk “all or nothing” trader. Let us take a closer look at what kind of trading normally will win in these competitions:

  1. Extremely high risk – no risk management:

In this kind of trading very high percentage of the equity is applied in the trades with free margins mostly stretched to a dangerous level, which means that often margin calls are always just a few pips away.

Lot sizes can become astronomical in the quest for maximum profit like e.g. in the following example where lot sizes of up to 1000 standard lots were used:

Competition2

  1. Huge drawdowns:

Very large or no stop losses are used, which results in very large drawdowns and therefore high risk.

Drawdowns of over 90% can sometimes be achieved, as can be seen from the following trading statistics of one of these winning traders:

Competition4

There are other high risk procedures that are followed by these competitors to maximise profit, but the two mentioned above should prove my point that these competitions promote dangerous approaches to Forex trading, which will not be found in normal trading.

This is a “six or nix” approach that may work if you are lucky, but most of the times fail. For example one of the winners of these competitions – wolf123 – also participated in other competition and here are the results of those other competitions for this competitor:

CompetitionWolf

In six other competitions he/she lost all/most of his/her money/ This is typical of all these winners.

Another interesting and telling statistic is the high number of margin calls in these competitions. Here is an example where 55% of the accounts received a margin call:

CompetitionMargin

It is clear that these brokers are not seriously looking to find the best traders, but are only marketing their services with a hope of winning back some of the prize money.

I am really looking forward to a time when these competitions will become REAL measures of a trader’s ability to trade profitably as they would in normal trading circumstances, when e.g. trading with their own money. So I urge brokers to expand their rules to include such things as maximum drawdown allowed, maximum lot size and/or percentage of the equity utilised, minimum time in the market, etc., so that their competitions can become more of a true measure of a trader’s ability.

I am not saying there are no competitions taking place with these kind of rules, there may be for all I know, but I would like to see the majority of these competitions follow this route. This will be less lucrative for the brokers maybe, but will be good for the Forex industry as a whole.

The Second Best Forex Trader in the World?

Lately a trader by name of Jarrat Davis has burst onto the scene – mostly promoted through www.forexpeacearmy.com. He claims to be the second best trader in the world between 2008 and 2013 . The authority he gives for this claim is the Barclay currency traders Index of www.barclayhedge.com , which is a firm that monitors hedge funds worldwide. I did a search in their database for his name and also his investment company (SMILe Global Management) but received no results. That does not necessarily mean that he is not monitored by them, it may be that I do not have access to all records. I have written an e-mail to them requiring confirmation of the results published on Jarrat Davis’s website, and here is the response I got:

“We do not grade anyone. All that we do is rank trading performance over various time periods. However, it is important to keep in mind that we rely on the trading performance that is provided to us by each of the trading managers and that we make no attempt to verify performance.”

The thing about this claim (that he is the second best trader in the world) that seems outrageous to me , is that there is NO way one can establish this. BarclayHedge cannot possible and does not monitor ALL individual Forex traders in the world. They do monitor hedge and investment funds though, and some of them may be traded by only one person such as Jarrat (doubtful if there are many millions of dollars involved – even Jarrat has students trading for him at the moment) So in my opinion this is a very misleading claim which has only one objective – to lure as many as possible to sign up for his training course.

Now you may think that I am splitting hairs here and so what if the claim is misleading? He is a good trader is he not? Well is he an individual good trader or not? Let’s look further into the matter.

There were some trading results published by Jarrat Davis on www.myfxbook.com for four months, but those results have now been removed from the site. These results showed that losses occurred in three of the four months of trading that were published, with a small profit in only the one month. Not very impressive results for the second best trader in the world, would you say?

I have evaluated his trading signals given for free through www.forexpeacearmy.com and his own website. I have even traded on a live account some of these signals and have made an overall loss so far – hitting my 100 pip stop loss twice. I intend to give detailed feedback on the outcome of these signals in a moment.

But first, you may wonder why I seemingly have got a bee in my bonnet about this man? Jealousy perhaps? No! Jarrat Davis has been marketing his high priced Forex training very aggressively (feedback from my students says that he keeps on pushing them to take the course) on what to me is a misleading claim. Also I believe it is very difficult for a trader which is not an economist to teach the intricacies of fundamental analysis of a country’s economy and the effect it will have on the currency of that country. We have seen how many expert analysts can make wrong deductions from news releases, and (as will be seen from the signals) Jarrat Davis can also get things wrong quite often.

My own opinion is that on the shorter time frames, e.g. H1 and lower, where we are looking to close our trades within a day, fundamental analysis does not play a big role and technical analysis works very well, but on the higher time frames, e.g. H4 and higher where our trades often stay open for many days, fundamental analysis becomes more important. I have therefore looked at the result of Jarrat’s trading signals, which are based mostly on fundamental analysis on the longer term.

Now let us have a more detailed look at these signals provided by Mr Davis:

I am the first to admit that there could be no exact figures coming from this analysis, because different traders would approach trades in different ways. What we can analyse though is if the price actually moved in the DIRECTION of the suggested trade in a reasonable time. So different entries – some maybe taken at a point of retracement – can perhaps give some extra pips, but will not be successful if the DIRECTION of the trade is opposite as indicated.

The method used to analyse these signals is as follows:

  1. We establish the current price at the Close of the H1 bar at the time the trade signal is given.
  2. Then we read the price again at exactly (to the hour) 5 market days later (weekends excluded).
  3. This should reveal to us the overall direction the price took after the signal was given, and if it agrees with the direction the signal recommended.
  4. A move of only 10 or less pips over the week in either direction was seen as inconclusive.
  5. In addition I have used a 100 pips Stop Loss as well as a 100 pips Take Profit, since this would have been representative of a typical trade, and if the price reached that target I was happy to accept that the direction was proven.

The reason we have decided on a period of 5 market days is to exclude short term corrections (retracements) and movements based on emotions and sentiment just after the signal was given, and measure the longer term direction that can be attributed to the fundamental issues involved. So the specific place of entry or number of pips gained or lost is not that important, but we are looking for the main DIRECTION the price took after the signal.

Also, we will be looking at a minimum of FOUR months’ of signals to get a statistically good average result.

Here are the results for the month of July 2014:

Date of Signal Currency Pair Direction of Signal Price of H1 Close at time of Signal Price exactly 5 market days later Difference in Price Pips Direction ?
01-Jul AUDUSD Buy 0.94560 0.93948 -0.00612 -100 Wrong
02-Jul NZDUSD Sell 0.87620 0.88085 0.00465 -47 Wrong
03-Jul AUDUSD Sell 0.93663 0.93680 0.00017 0 Inconclusive
07-Jul USDJPY Buy 102.090 101.406 -0.684 -100 Wrong
08-Jul NZDUSD Sell 0.87712 0.87861 0.00149 -15 Wrong
10-Jul AUDUSD Sell 0.88088 0.86886 -0.01202 100 Correct
11-Jul USDJPY Buy 101.244 101.316 0.072 0 Inconclusive
14-Jul USDJPY Buy 101.405 101.237 -0.168 -17 Wrong
15-Jul AUDUSD Sell 0.93666 0.93929 0.00263 -26 Wrong
16-Jul NZDUSD Sell 0.86935 0.86804 -0.00131 13 Correct
17-Jul EURUSD Buy 1.35263 1.34490 -0.00773 -77 Wrong
18-Jul USDJPY Sell 101.342 101.748 0.406 -40 Wrong
22-Jul AUDUSD Buy 0.93931 0.93968 0.00037 0 Inconclusive
23-Jul AUDUSD Buy 0.94391 0.93733 -0.00658 -66 Wrong
24-Jul NZDUSD Sell 0.85729 0.85067 -0.00662 66 Correct
25-Jul NZDUSD Sell 0.85761 0.84867 -0.00894 89 Correct
28-Jul NZDUSD Sell 0.85368 0.85038 -0.00330 33 Correct
29-Jul NZDUSD Sell 0.85134 0.85250 0.00116 -12 Wrong
31-Jul NZDUSD Sell 0.85063 0.84595 -0.00468 47 Correct
Total Pips -152 33% Correct

 

Here is the results for the month of August 2014:

Date of Signal Currency Pair Direction of Signal Price of H1 Close at time of Signal Price exactly 5 market days later Difference in Price Pips Direction ?
01-Aug USDJPY Buy 102.952 101.611 -1.341 -100 Wrong
05-Aug AUDUSD Buy 0.93348 0.92513 -0.00835 -84 Wrong
06-Aug NZDUSD Sell 0.84386 0.84400 0.00014 0 Inconclusive
07-Aug AUDUSD Sell 0.92681 0.93051 0.00370 -37 Wrong
08-Aug USDJPY Sell 101.605 102.542 0.937 -94 Wrong
12-Aug AUDNZD Buy 1.09910 1.10512 0.00602 60 Correct
13-Aug AUDUSD Buy 0.92973 0.92969 -0.00004 0 Inconclusive
14-Aug NZDUSD Buy 0.84731 0.83743 -0.00988 -100 Wrong
15-Aug GBPUSD Buy 1.66781 1.65860 -0.00921 -92 Wrong
19-Aug NZDUSD Sell 0.84396 0.83766 -0.00630 63 Correct
21-Aug AUDUSD Buy 0.92653 0.93535 0.00882 88 Correct
Total Pips -296 25% Correct

 

Here is the results for the month of September 2014:

Date of Signal Currency Pair Direction of Signal Price of H1 Close at time of Signal Price exactly 5 market days later Difference in Price Pips Direction ?
03-Sep USDCAD Buy 1.09188 1.09769 0.00581 -100 Wrong
04-Sep AUDJPY Buy 97.954 97.880 -0.074 0 Inconclusive
05-Sep EURUSD Sell 1.29412 1.29238 -0.00174 -17 Correct
08-Sep GBPUSD Sell 1.61573 1.62459 0.00886 -100 Wrong
10-Sep EURAUD Sell 1.41329 1.42743 0.01414 -100 Wrong
11-Sep NZDUSD Sell 0.81808 0.81112 -0.00696 100 Correct
15-Sep AUDUSD Sell 0.89993 0.89135 -0.00858 86 Correct
18-Sep EURUSD Sell 1.28812 1.27358 -0.01454 100 Correct
19-Sep GBPUSD Buy 1.64530 1.63026 -0.01504 -100 Wrong
23-Sep EURAUD Sell 1.44375 1.44293 -0.00082 0 Inconclusive
25-Sep NZDUSD Sell 0.79555 0.78717 -0.00838 83 Correct
29-Sep NZDUSD Sell 0.77599 0.77963 0.00364 -36 Wrong
Total Pips -84 50% Correct

 

Here is the results for the month of October 2014:

Date of Signal Currency Pair Direction of Signal Price of H1 Close at time of Signal Price exactly 5 market days later Difference in Price Pips Direction ?
01-Oct AUDUSD Sell 0.86956 0.87870 0.00914 -100 Wrong
02-Oct EURAUD Sell 1.43749 1.43698 -0.00051 -100 Wrong
06-Oct EURUSD Sell 1.25293 1.26597 0.01304 -100 Wrong
09-Oct GBPUSD Buy 1.61716 1.59902 -0.01814 -100 Wrong
10-Oct AUDJPY Sell 94.415 92.923 -1.492 100 Correct
14-Oct USDJPY Sell 107.130 106.394 -0.736 100 Correct
15-Oct GBPUSD Sell 1.59163 1.61140 0.01977 -100 Wrong
16-Oct USDJPY Sell 106.226 107.291 1.065 -100 Wrong
17-Oct AUDUSD Buy 0.87447 0.87536 0.00089 0 Inconclusive
20-Oct AUDJPY Buy 93.937 95.022 1.085 100 Correct
21-Oct AUDUSD Buy 0.87576 0.88190 0.00614 61 Correct
22-Oct EURUSD Sell 1.27327 1.27388 0.00061 100 Correct
23-Oct NZDUSD Sell 0.78455 0.78027 -0.00428 -100 Wrong
24-Oct USDJPY Sell 108.102 111.134 3.032 -100 Wrong
27-Oct EURJPY Buy 137.051 140.880 3.829 100 Correct
29-Oct AUDJPY Buy 95.701 99.475 3.774 100 Correct
30-Oct NZDUSD Sell 0.78000 0.77485 -0.00515 52 Correct
31-Oct USDJPY Buy 111.13200 115.27700 4.14500 100 Correct
Total Pips 13 53% Correct

 

As can be deducted from the results published above followers of these signals most probably would have made losses in July and August and broke even in September and October. If we are generous we could say that based on these results Jarrat Davis are correct approximately 40% of the time.

Is that a hallmark of the 2nd best trader in the world?

I am just an average profitable technical trader and I made 2805 pips out of 44 winning trades out of a total of 49 trades taken during the month of October *. Admittedly October 2014 was a very good month for trading, and therefore the results of Jarrat Davis to my mind is very disappointing.

I therefore come to the conclusion that if Jarrat Davis is the 2nd best Forex trader in the world – I must then certainly be the best in the world based on statistics. He! he!

I want to conclude by issuing a warning to everyone who are considering taking Mr Davis’ expensive Forex training course, or to become a member, to investigate this matter first thoroughly and then make an informed decision.

Thank you for your time!

* I am willing to share details of my trades for the month of October with anybody interested, as well as an overview of the system I trade and teach that was the source of my trades. Just drop me an e-mail to info@forex-training.co.za.

The Sickness that is Raging out of control in the Forex Industry

For some time now there is a growing disease in the Forex industry that is busy taking on catastrophic dimensions. This sickness has taken over the signal provider / social trading and expert advisor / robot markets, and is causing many people to lose large amounts of money, while the perpetrators are often laughing all the way to the bank.

I call this a sickness or a disease, because it brings financial suffering, pain and loss to many, while those who cause it profit from their evil practices.

Let me explain by way of illustration.

To start with I have used some examples from the popular social trading platform eToro. The current trader with the most followers (83,494) and copiers (4544) is Anas Sleiman. Here are his trading results for the past 2 years:

eToro Top trader

If you think this is impressive or unusual having 96% winning trades over 2 years, have a look at this other trader from eToro – a guy called Pedro Reiss from Portugal:

eToro Pyrus stats 3 years

99.9% winrate over 3 years based on 1757 trades !! Just unbelievable!

Anybody that knows anything about Forex trading will smell a rat here, BUT NOT THE ORDINARY MAN IN THE STREET LOOKING TO MAKE SOME EASY MONEY. He/she sees this as a wonderful opportunity to access trading signals that never lose, and the dollar signs start flashing in the eyes.

ALL HE/SHE IS INTERESTED IN – AND SWAYED BY – IS THE PERCENTAGE WINNING RATE!

Signal providers and robot sellers know this and market their wares accordingly.

But what is the real story?

Let’s investigate these unbelievable stats a little further, and get behind the showroom window and expose the dirty litlle secrets in the back offices – so to speak.

When we have another look at our amazing trader Pedro Reiss’s data. We find the following situation:

HE HAS APPROXIMATELY 90+ OPEN TRADES – MANY (18 of them) 3 YEARS OLD – ALL OF THEM IN A BIG LOSS SITUATION! Here is a small sample:

eToro Pyrus Open Trades

Then if you look closer you will notice that (in the trade marked on this list) the following situation:

Price at which the trade was transacted           1.4934
Stop Loss is at                                                       1.1700
Stop Loss in number of pips                        3,234

Take Profit is at                                                    1.4951
Transaction price                                                 1.4934
Take Profit in number of pips                          17

So here is one of the secrets of these high probability traders – THEY EITHER HAVE NO STOP LOSS OR A HUGE ONE (WHICH IS MORE OR LESS THE SAME AS NO STOP LOSS), AND IN COMPARISON A VERY SMALL TAKE PROFIT TARGET.

In this case, if only one stop loss is ever hit, it will wipe out nearly 200 winning trades (approximately equal to 4 months of winning trades based on these stats). If 9 of them are hit it will wipe out 3 years of profit and if more are hit it will reduce your capital – maybe even to zero.

The other thing is – keeping open these trades reduces your free margin for trading tremendously so you should have a very large deposit to be able to continue trading. This type of trading will just take you deeper down the rabbit hole – and sooner or later the day of reckoning will arrive where you will have to pay up.

So if I am prepared to take this huge risk what can I expect to gain in profits from this kind of trading? Here are the stats for this “amazing” trader:

eToroGain

16.8% over three years giving an average return of 5.6% per annum. Is that enough for you? I think that is ridiculous in relation to the risk involved.

Now some of you may say: “eToro traders do not gain financially from their signals”, and that may be true. I used these stats because they were so complete and available to prove a point, but the same principle is true for those traders that do gain financially from their signals, and also for the sellers of robots and / or systems, which follow the same principles.

Let me show you.

Let us select a trader and signal provider from the largest source of Forex trade signals in the world, i.e. Zulutrade. These people gain financially when anybody copies their trades. Here is one taken randomly selected from the better ones that has a high win % called White Horse (you will notice that I am not afraid to name people) and his/her stats are as follows:

ZulutradeWhiteHorse

You can see that this guy has a winning percentage of 98%.

Next you will notice that this trader has several trades open in a loss situation (to the value of – 312.70 pips) and if we look closer we find that they have NO stop loss:

ZulutradeNoStop

Once again the same formula.

I this case we also see the effects of keeping trades open with no (or large) stop losses, or where a losing trade is eventually reluctantly taken – and this is the drawdown percentage. In this case it is 80% (!) which means you can lose 80% of your capital. Again, if this huge drawdown brings you to a point where a margin call is exercised by the broker, because the account is running low of free margin, you can lose all your money.

Here is the proof:

ZulutradeGraph\

Another give away of this type of high risk trading to get a high win % to entice customers, is the largest win and loss amounts. The losing amounts are usually much larger than the winning amounts. In this case it is 5 times larger (best trade 43 pips vs worst trade 210 pips)

This sickness is not only prevalent among signal providers, but also among sellers or creators of robots and/or systems.

Here for example is a robot that has 97.92% winning trades. Only one loss trade in 48 trades, but that one loss trade just wiped out your profit as well as your capital. Why? NO STOP LOSS of course. But I can sell a system with 98% wining trades to unsuspecting customers who do not know better than judging systems by their win rate.

And if I am a signal provider I coin it for a long time, making a lot of money and when judgment day arrives, I just close everything and open again under a new name.

Here are the stats for this high win rate robot:

RobotResults

“Ah!” you say, “this particular seller publishes its actual transaction log where I can see precisely what is happening”. My dear person, what he probably does is publishing only the closed trades, and leaving out or hiding the open trades (which is reported in another section of the MT4 report) which may be showing huge losses.

So the summarize – here are some of the clues you have to watch out for to detect this kind of very high risk trading where the objective is to entice customers with a high win percentage:

  1. Are there many open trades in a loss situation that may also be open for a long time in comparison to the closed trades?
  2. Are the Stop Loss (and Take Profit) levels transparent and published? And are the Stop Losses more or less the same size as that of the Take Profits? If the Stop Losses do not exist or are MUCH larger than the Take Profits we may have a problem.
  3. What is the size of the largest drawdown for a given period? If it exceeds 30% it is getting into a high risk area.
  4. Are the worst trades more or less the same size or smaller than the best trades or average winning trades? If not the system may be suspect.

Some systems may have all of these criteria present, and others just some of them, but just one of them should ring the warning bells!

Oh! You are wondering if our top trader Sleiman is also guilty of this practice? Well, judge for yourself. Here is an extract of some of his open trades:

eToro Top trader1

And what about his Stop Loss and Take Profit relationships?

Here is an example (BUY GBP/USD trade):

Stop Loss      1179 pips

Take Profit         7 pips

Sorry! No good news. The same old story – just a degree of difference – but the same high risk approach.

It grieves me that some people with no conscience can use this high risk approach to fulfil their greed by leeching on unsuspecting and ignorant customers that are looking for a good investment opportunity, and then get away with it.

Please help me to spread this story to as many places, sites and forums as possible to warn or educate unsuspecting people.

Thank you for your time!

Author: Ernest Klokow owner of http://www.forex-training.co.za

How to Select the Best Forex Training

 

Anyone who has surfed the Internet to look for a Forex Course or Forex Training will know that there are numerous options available to choose from. This abundance of options may confuse the new student and he/she may not know how to distinguish between the various types of Forex training courses offered by the different vendors.

Leaving the cost factor aside in a decision of which Forex training course to choose, what would be the crucial factors in making the right choice that will give the most benefit to the student as well as the most advantageous tools / knowledge in becoming a successful Forex trader? There are many factors that can play a role, but for simplicity we have identified the FOUR most crucial factors in Forex Training that will determine the most success in reaching that goal of becoming a successful Forex trader. These four are:

 

1. Classroom or One-on-One Training

Forex training courses that are supplied in a digital (e.g. DVD) or text (e.g. Book) format or self-training over the Internet may be good for teaching you the basic principles involved of Forex Trading, but is worth very little when it comes to practical training and experience. It will give you some introduction to Forex Trading, but nothing more.
Even the Forex training courses presented over the Internet with live presenters, can never duplicate the classroom or one-to-one environment with everyone sitting at a “live” terminal and where you rub shoulders with your trainer and other students and communication flows freely and the students and the trainer have access to everyone’s terminal to look over each other’s shoulders at successes and problems experienced by the different students. An Internet Forex training course can never create the same vibrant and creative atmosphere with the same opportunity for taking apart in live trading as in a classroom group. It is this live trading experience in a group that is the most valuable contributor to future success.

 

2. The Practical Experience and Success of the Trainer

Course manuals can have only so much information in them – normally only the basics or covering the most common issues. The VALUABLE information that is going to make a difference and produce successful traders must come from the Trainer or Mentor. Therefore it is of critical importance that the trainer / mentor must have gone through the mill and have many years of practical Forex Trading experience behind him/her and has learned all the hard lessons – sometimes at high financial and psychological cost. Furthermore, the Trainer must have proven him/her to have learned through that experience how to trade profitably. He/she must have the answers!

 

3. Must offer proven winning Systems and Strategies

It is very important that the Forex training course you decide to attend must offer as part of the course some proven winning Systems and Strategies to get you started in a profitable way. These systems will introduce the students to the world of trading in a very practical and positive manner and give them not only the knowledge what a winning system looks like, but also the confidence to start their own personal trading account.

 

4. On-going mentoring and hand holding

One does not become a successful trainer after attending a two or three day course – it takes many months and even in some cases years of practical experience. Any good Forex training course should have an option to have continued mentoring after the training. This can take the form of weekly get together over the Internet in either a trading room or a service like Skype to share trading experiences and ask questions. Once again, only an experienced successful trader can really supply this mentoring service.

If you want to know more:

E-mail: info@forex-training.co.za