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Forex Day Trading V Forex Trend Following Which is Best?

Author: Monica Hendrix Author Ranking Gold | Posted: 07-05-2008 | Comments: 0 | Views: 20 | Rating:  (50) Article Popularity - Green (?) Got a Question? Ask.
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If you want to make big profits in forex trading you need to decide the time frame you wish to tradhere we will compare forex day trading with forex trend following and the clear winner is...

Forex trend following.

It's really a no contest because day trading doesn't work. Before we compare the two lets get rid of the myth day traders make money. You have seen all those fantastic track records - but they all have a problem and it's this disclaimer:

"CFTC RULE 4.41 - Hypothetical or simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown".

So there you have it - the track records are made up and that's why you see a winning track record. Of course if you have read the above doing a track record looking backwards is easy, doing it real time is hard.

Let's compare the two methods of trading:

Validity of Data

Of course if you want to trade you need data and this data needs to be reliable.

Forex day trading data simply is not. Why?

All volatility within a day or a few hours is random. You can't trade it no matter how good your system is. Support and resistance in short periods is not valid and daily price moves can go anywhere.

Once you move to trend following the data is over long enough periods to trade the odds and that's exactly what you need, to have a chance of currency trading success.

Cutting losses

You can cut losses in both but due to the nature of day trading your going to have a lot of them. There is no real difference between the two discipline here they can both keep losses small. Now we need to look at profits - you need these to cover your inevitable losses as the old saying goes so lets see which method is best.

Running Profits

The day trader has huge amount of losing trades and will get lucky and win now and again however what do day traders do? Cut them! So they have small losses (a ton of them) and an occasional profit which is small.

What does this mean?

An eventual wipeout of equity.

The trend follower has a distinct advantage he can keep his losses small and run his profits and they can be huge. The big forex trends can last for weeks or months and if these are held, profits can easily cover losses and make a big long term gain.

I know people who trend follow and lose 80% of the time - but they make triple digit annual gains because they run their profits.

Finally...

There is a huge industry in online trading that promotes day trading as an easy way to riches - just follow the simulated, back tested track record and win but no one does long term.

Day trading is promoted as low risk but its actually high risk.

Forex trend following if done correctly, can help you achieve currency trading success and really there is no contest between the two - if you want to make money, try forex trend following and forget day trading.

If you get the right forex education and a simple robust long term trading system you can enjoy trading success.

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