Perhaps one of the most important aspects of currency trading - in my opinion - is the focus in realistic and accurate long term profit and draw down objectives. Nonetheless, through the past several years I have observed that people almost never focus on long term investment and - more often than not - their decisions are based on short term and meaningless results that give them extremely little information about the real trading characteristics of the system they are using. On today's article I want to discuss with you why most people have short term focus, why it is so dangerous to have one and why this is one of the chief reasons why most people will never reach the goal of living from either manual or automated forex trading.
The truth is that in the beginning people want results and they want them as quickly as possible. Since people who are new to currency trading crave for fast results they often choose and run systems that have showed very high profitability during small periods of time. Part of this is the reason why Martingales and scalpers are so successful with new and less experienced forex traders, they show people fast evolving equity curves with little draw down that seem to answer the prayers of people looking forward to making a living from currency trading.
The main problem here is the focus on profits most new traders have while their focus on draw down is extremely limited. New traders often believe that a few months of profitable results mean that the system will be able to reproduce those results infinitely or at least for long enough as to get them a huge amount of profit to ease all their financial worries. When an experienced trader looks into most of these short term results he or she sees a system with a huge market exposure, unsound trading tactics and lack of proper long term analysis that shows the system's reactions under varied market conditions.
In the end what happens is that these new traders neglect to see that they are looking at a short term profitable cycle and that in the long term the risk level they are using will inevitably lead them to a total loss of their trading funds. It is - if you ask me - a matter of having vision and thinking about loses in the long term. The first question I ask myself when I intend to use a new trading system is : What are my loses (draw down periods) going to be in the LONG term (5-10 years) ? Almost all new traders fail to ask this question while they get overly excited about some short term live results which can range from a few months to a year of trading.
What I have seen after this - time after time - is that the EA goes into a draw down cycle and some traders get wipeouts while others freak out and stop trading the system. Traders then start to believe that "automated trading doesn't work" and that "all systems fail as the market changes" while in reality what happens is that they do not understand or know how to evaluate trading systems and how to focus on long term draw down and profitability to truly achieve long term success. What happens is simply that there are no short cuts in forex trading and completely understanding the automated trading systems you are using is vital to succeed with them in the long term.
My advice for you is therefore simple, do not focus on short term results and always understand the inherent characteristics of the trading system you are using. Always know the long term (5-10 year) draw down and profit targets and always understand the depths and lengths of the draw down periods you will encounter. Also have a strong focus on the reliability of the simulations since you can be greatly overestimating profitability and underestimating draw down if your system does not lend itself to accurate simulations. For this reason I always stick to systems that can be reliably simulated which give me accurate draw down and profit targets that allow me to know what I am trading, be confident and know exactly when my systems would have become too risky to be traded.
If you would like to learn about forex trading system design and how you too can start trading your OWN likely long term profitable systems with sound risk and profit targets please consider buying my ebook on automated trading or joining Asirikuy to receive all ebook purchase benefits, weekly updates, check the live accounts I am running with several expert advisors and get in the road towards long term success in the forex market using automated trading systems. I hope you enjoyed the article !
The truth is that in the beginning people want results and they want them as quickly as possible. Since people who are new to currency trading crave for fast results they often choose and run systems that have showed very high profitability during small periods of time. Part of this is the reason why Martingales and scalpers are so successful with new and less experienced forex traders, they show people fast evolving equity curves with little draw down that seem to answer the prayers of people looking forward to making a living from currency trading.
The main problem here is the focus on profits most new traders have while their focus on draw down is extremely limited. New traders often believe that a few months of profitable results mean that the system will be able to reproduce those results infinitely or at least for long enough as to get them a huge amount of profit to ease all their financial worries. When an experienced trader looks into most of these short term results he or she sees a system with a huge market exposure, unsound trading tactics and lack of proper long term analysis that shows the system's reactions under varied market conditions.
In the end what happens is that these new traders neglect to see that they are looking at a short term profitable cycle and that in the long term the risk level they are using will inevitably lead them to a total loss of their trading funds. It is - if you ask me - a matter of having vision and thinking about loses in the long term. The first question I ask myself when I intend to use a new trading system is : What are my loses (draw down periods) going to be in the LONG term (5-10 years) ? Almost all new traders fail to ask this question while they get overly excited about some short term live results which can range from a few months to a year of trading.
What I have seen after this - time after time - is that the EA goes into a draw down cycle and some traders get wipeouts while others freak out and stop trading the system. Traders then start to believe that "automated trading doesn't work" and that "all systems fail as the market changes" while in reality what happens is that they do not understand or know how to evaluate trading systems and how to focus on long term draw down and profitability to truly achieve long term success. What happens is simply that there are no short cuts in forex trading and completely understanding the automated trading systems you are using is vital to succeed with them in the long term.
My advice for you is therefore simple, do not focus on short term results and always understand the inherent characteristics of the trading system you are using. Always know the long term (5-10 year) draw down and profit targets and always understand the depths and lengths of the draw down periods you will encounter. Also have a strong focus on the reliability of the simulations since you can be greatly overestimating profitability and underestimating draw down if your system does not lend itself to accurate simulations. For this reason I always stick to systems that can be reliably simulated which give me accurate draw down and profit targets that allow me to know what I am trading, be confident and know exactly when my systems would have become too risky to be traded.
If you would like to learn about forex trading system design and how you too can start trading your OWN likely long term profitable systems with sound risk and profit targets please consider buying my ebook on automated trading or joining Asirikuy to receive all ebook purchase benefits, weekly updates, check the live accounts I am running with several expert advisors and get in the road towards long term success in the forex market using automated trading systems. I hope you enjoyed the article !
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