Forex Trading and Gambling One and the Same

I often find it curious that people tend to react very negatively when forex trading is compared to gambling. Every time I talk to a proffesional trader about this matter we end up discussing how only "new traders" gamble and proffesionals do not gamble but "trade". What is so different between forex trading and gambling ? Through the following few paragraphs I will tell you my views on the subject and why I believe that forex trading is a form of gambling. I will also tell you how they are different and what the difference between investing in forex and going to Vegas really is. At the end of this article I hope you will understand my points of view and why forex cannot be considered anything but a type of gambling.

So what is gambling anyway ? Gambling is simply the act of betting on the outcome of a given event without any true certainty about its result. Sounds familiar ? Forex trading is merely the betting of a certain amount of money on the outcome of price movement without any absolute knowledge of where price will head. Therefore, in accordance to the definition of gambling, forex trading and any other form of speculative investing is merely gambling. But if it is gambling by definition then why do proffesional traders find this comparison offensive ?

The problem arises because people often relate gambling with casinos and in casinos you are gambling on a game which has an outcome which will be statistically unfavorable to you in the long term. Casinos make money because they are NOT gambling, they know that the outcome of a large sample of events will always be in favor of the house. In practice, a player in a casino floor may feel like he or she is "gambling" (which is true for small samples which can effectively be totally random) but statistics do favor the casinos within a large number of events. What this means is that if someone plays in a casino for an infinite period of time, the casino will end up with all the money. The casino always wins since it has a statistical edge on all the games played.

Many traders are offended by the comparison because they believe that people are telling them that they trade like they would play in a casino, to inevitably lose money in the long run, which is why new traders are so often compared with casino floor players.

In reality, forex trading is gambling, but it is a "game" in which the odds are not set against you in a mandatory way. Forex trading resembles sports betting a lot more. In sports, a bet is made for a time with a lot of information which can be used to determine the winner with statistical significance. For example, if a horse has won the past 10 races, then it is bound to also win the next rase. Betting for this horse will give you a statistically higher chance of winning than betting against other horses. However, the outcome is never known so it might happen that your horse loses. However, within a large given number of events, you can be an overall winner if you know enough about the facts that affect the outcome of the events.

Forex trading is very similar, if you know enough about the facts which determine the outcome of price movements then you can statistically profit from the market even though you may lose in several events due to the true outcome of any event being unknown. The more educated gamblers make money while the less educated gamblers which have no capacity to determine the probabilities of certain price movements against others end up losing their money. Since every dollar is sold for every dollar bought, the best gamblers get in and out with money when the others get in and out to give their money.

So in the end the matter is pretty simple. If you trade like you would gamble in Vegas, without any edge, you will lose, however if you gamble with intelligence and with analysis over the outcome of events you will, in the end, become a profitable trader.

If you would like to learn more about the systems I use to trade in the forex market for a living and how you too can design and trade your own automated long term profitable systems 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 !

Diposting oleh Unknown 07.47 0 komentar

Does Hedging on the same currency pair Really Exist A Look at Position Holding in Forex Trading

One of the things I consider the funniest about forex traders is that they seem to have a strong opposition against the removal of "hedging" from their trading capacity. However few of them do realize that the traditional hedging we have seen where you buy and sell a given currency pair at the same time is merely and illusion and that in reality it doesnt exist or -for that matter- make any real sense. On todays post I want to talk about the concept of hedging, why it simply doesnt exist in reality and why any strategy that uses this concept can be implemented without its use. After reading this post you will understand better that hedging a currency pair by having open long and short positions at the same time is not possible in the real market and you ll see how you can actually understand what you are doing when you have this on your account and how it can be implemented within your strategy to have the exact same results without ever having more than one position opened per currency pair.

What is hedging after all ? In general it refers to the taking of opposite positions with a certain degree of correlation that offers some protection against side movements in the market. So for example going short EUR/USD and short USD/CHF is bound to guarantee some protection against variations in either currency pair since they are heavily and negatively correlated. However since the correlation is not 1 the actual effectiveness of this hedge depends on market conditions and - when correlation is temporarily lost - such hedges become extremely dangerous.

However, when people in the MT4 community refer to "hedging" they generally talk about having a long and short position opened at the same time on a currency pair. For example they open up a long on the EUR/USD at X price and then a short afterwards to cover up their loses or to "fix" some of the profit level they have achieved. Many traders who are not familiar with how the market works consider hedging absolutely vital for their success and the removal of this feature seems to be extremely unacceptable.

When we look close having a short and a long trade opened on the same pair is merely an illusion. What you are doing is buying and selling the same contract so if you were actually carrying out currency exchanges (of physical currency) you would have done the same exchange twice and ended up with what you started with (your ending net positioning is 0). It doesnt actually make sense if you think about it and the way it has been implemented in MT4 is practical in some ways but very misleading in others.

As a matter of fact, any hedging strategy can be implemented EXACTLY in the same way without ever having two positions opened in the market. For example if you bought USD/JPY at 85.54 then you want to enter a short position at 84.54 then exit the short and the long at 86.54 the same effect would be realized if you closed the long at 85.54 because closing the long is indeed what you would be doing in reality if you entered a short. The later point where you exit both the long and short is irrelevant since your net positioning from the open of the short is 0.

Case 1 ( Buy 85.54, Sell 84.54, Close both 86.54)

Long Result = 86.54-85.54 = 100 pip profit
Short Result = 84.54-86.54 = 200 pip loss

Net Result = 100 pip loss

Case 2 (Buy 85.54, Close 84.54)

Long Result = 85.54-84.54 = 100 pip loss

Net Result = 100 pip loss

So in summary it is now evident that the current "short and long hedging ability" in metatrader 4 is simply an illusion and that any strategy can be implemented which currently relies on this feature simply by taking into account the net positioning of the account. When shorts are entered they close longs and when longs are entered they close shorts. In the end this leads to the exact same effect as we would have had if we had simply opened all the short and long positions simultaneously since what matters is merely our net positioning in the market. This is the approach that really makes sense and falls in line with what would happen in a physicial currency exchange.

To sum it up, if you currently have a portfolio trading on the same instrument or if you are trading a system that opens longs and shorts on the same currency pair, dont worry about hedging as you can always implement your strategy using a net positioning approach, something we will all have to do once we move entirely towarsd metatrader 5.

If you would like to learn more about my journey in automated trading and how you too can code likely long term profitable systems using reliable trading tactics 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 !

Diposting oleh Unknown 16.45 0 komentar