Westpac Bank made the following trade recommendation the other day – as informed to us by Francesc in a blog - http://www.forexstreet.net/profiles/blogs/westpac-trade-recommendat...
I was immediately drawn to it as a “typical” investors trade – fairly inefficient – but looked upon as fairly safe and risk free. Nothing against Westpac – as far as I am concerned – they are as good as any bank.
I then looked at it further and thought – its not even that risk averse and if anything for me – not the type of trade I would encourage other retail traders to take.
In summary – its below average and as we might say in the UK fairly “naff”. Why you might ask have I the audacity to take on a major Australian Bank who employ top professionals and criticise them and all their trades inefficient and “naff”.??
Well the facts speak for themselves and I will point them out to you before going on to explain – why you as a retail forex trader can do so much better.
Our aim as retail forex traders – is first of all to make profit or money – and then to try and trade efficiently – so that we grow our account 100-300%+ per annum – but with controlled low risk - to not be satisfied with just 40-70% per annum – with good months and bad months with losses.
Do not accept it that this should be looked upon as satisfactory and having losing months is just part of trading – well it is if you are not prepared to be a “free thinker” and challenge the norm and the rubbish this industry churns out !!
This Westpac trade as a RR of only 1 ( no good- especially when you need a full day plus or 4 even to get a result) and they have even mentioned about adding more stake on when you are out of pocket 100 pips?? –
Can you believe it – that’s gambling - ie they are saying they know for sure it will go down lower.
Well actually what they are saying is that they feel the odds are more on their side - which even if they are there is still a 20 or even 50% chance that they could be wrong and price goes past their stop before falling.
So if you take this trade with the normal as advised 2% of your capital as stake - you might in 1 or 4 + days make a 2% increase – ie lets say a 70-75% chance.
Now if you are a swing trader are you going to take 2 or 4 or even more trades whilst you wait for this one at 2% stakes ?
Because if you are you are exposing yourself to what 4-8% of your capital in the market – at the same time.
That is bad – and if you say – no only 1% on each trade – you still could end up with 4%+ exposed – which really is a bit risky.
We understand traders with small accounts exposing even 10 -15% of their capital on their trades – but 7 bad trades in a row could blow their account – quite easily.
If you say – yes but you don’t have 7 bad trades in a row if you are fairly experienced with a win ratio of over 60 or 70%
Well think again – you can have a win ratio of even 75% and still have 10 bad trades consecutively - it is possible – rare – but ay- “black swan” events can happen and do happen quite regularly in this market.
So what’s the answer –
Well HFT gave the game away – but I don’t expect any retailer to be taking 5 or even 50 trades in a minute and put 5% on their account in that time.
If you want to make 300% + per annum – you have to take multi intraday trades ideally that finish in under 1 hour and with small enough stops to give you RR’s of 1+ and at least 2 a week over 5.
You don’t have to be in more than 2 trades at the same time – and you can even trade on under 2% stakes and still have the odd days when you will put 10% + on your account.
Please do not think you need to risk 10% or more of your capital per trade to get results – you don’t and I will prove it to you with just using 1.5% stake on multi trades – comparing it to even 3% ( double) with the Westpac Bank trade idea.
OK – 1.5% stake on trades and lets look at 300%+ per annum with just a 60% success rate and RR average of just 1.5 – not 4 or 10 – which you might have on good days.
The key now is a minimum 7 trades a day - 20 trades a day plus is pushing it – 4 trades a day not enough
Aim for 6 -10 trades on 2 pairs – but need not be simultaneous – that’s not really scalping – but all your targets need to be under 30 pips as well as your stops under 10 pips – they must finish in under a day and ideally under 1 hr – so you are nor exposed with more than 2 trades on at same time.
Now if we do the Westpac Bank – swing trades with say 2 complete trades a week - with a 65% success rate - - that means every month – we should have 8 trades and 5 win at 3% and 3 lose at 3% = 15 -9 = 6%
per month capital gain.
So say 10 months a year – you will have holidays etc etc – then that’s a result of 60% per annum result – or say 70% if you worked 12 months
Intraday trading – on less win ratio – ie 60% you will have –
Per week – 35 trades – 21 winners –at only 1.5% risk ( half) and RR of 1.5 ( still low) = 47.25%
14 losses ( yes 14 terrible) – at 1.5% risk = 21%
Net result per week gain of account with only 60% success rate = 26.25%
Lets say only 40 weeks in year worked – Result is a 26.5% x 40 = 1060%
So Bank way of trading – net result – ( after spreads – all figures are after 2 pip spreads)
60-70% per annum
Intraday trading – with a less success rate – and only half risk ( 1.5% against 3% )
1000% + per annum
Now please can you all understand why I criticise all swing and longer term trades – and do I make over 1000% per annum – NO – I don’t risk 1.5% stakes – mine are a lot lower as an ex accountant I am so risk averse ;-)))
Start changing the way you trade tomorrow – its not too late ;-))
OK it might take you another couple of years to get there – but your results will then be well worth the extra work and effort.
Meanwhile – my advise to intraday traders would be – ignore any bank trade – unless it can be achieved in under one session ;-)
Looking forward to hearing from all the doubters – and please pull the figures apart – if you can ;-))