Forex Skepticism

[MoneySkeptic]

Hi there,

I'm a skeptic and I love to debate whatever, but something other than flying-saucers and gods has been my favorite subject matter for skeptic thinking for some time.
It's the Forex - foreign exchange market.
I've been reading a lot about it and not believing one single thing. Here's a little list of what I've read and doubted:
- technical analysis: candlestick patterns
- technical analysis: indicators and oscillators
- trendline breakouts (I don't even believe there are trends...)
- deMark trendlines
- fibonacci lines and retracements (those I'll never believe in!)
- price action
- trading systems based on the above

So I've been writing a program (I'm a programmer) to test those candlestick patterns and those indicators for their success rate and statistical worth, but I've been really slow on it since I'm kind of lazy (ok, I am lazy).
I'd like to one day test some forex strategies based on sheer chance. for instance, a strategy that doesn't analyze anything - it just opens a position, either long or short, with a take-profit order two times the stop-limit. How well would that strategy perform?
I'm also very skeptic of "making a living trading forex", although I'd love for that to be true.
But I'd love to know what some of you guys think about forex, and I'd especially like to know if anyone here trades the forex or whatever actually (be it stocks or whatnot) and if you do, what you use to profit from them.
Apparently the only thing that strikes me as potentially being true is the fundamental analysis thing, where you wait for news to come and then trade it, but it also seems too fishy for me, I don't know exactly why. With all those order limits, wouldn't it be too easy to trade the news with low risk?
Anyway, I should probably listen to what you have to say now.

[El Greco]

Well... long subject. I guess the best way to trade is find some developing market and choose a stock with good fundamentals and then wait. Buy when it's low, sell when it's high, yadda yadda yadda. Or, if you are a broker and have access to a lot of funds, try scalping etc (but then you wouldn't be posting here).

I recently read a succesful example of a person who remained sane and earned more than most traders do: He's a doctor who invested 200,000 euros in 2003 in a good stock, when the AthEx was very low, and 4 years later he sold his stocks for about 1,100,000. Luck helped of course, but it wasn't blind luck. And meanwhile he wasn't depending on that money so he wasn' living in anxiety.

There are many emerging markets these days but you can't predict with accuracy the short-term trends. If you invest with a long-term perspective in several different countries where indexes are low and make a portfolio spread among several sectors, then you have a very good chance of making very good profits. It would help a lot if you have a substantial capital to invest.

[roger]

Forex is for professionals - people hedging international stock purchases so their performance is dollar neutral, stuff like that. Very rational. Otherwise it's pretty much a crap shoot - play once or twice and you can win big (since it is all done with leverage), but play often and you will be bankrupt. I wouldn't touch it if you're not capable of running a hedge fund with international investments.

For a sceptical look at technical trading, look up the book Evidence-Based technical Analysis. They ran thousands of various TA methods through their computers, and none showed evidence of beating the market.

[Pyrts]

I do trade stocks (tiny portfolio) and have done okay with "The Dogs of the Dow" strategy. I also read Motley Fool and have found their advice useful. But what's possible for the big guy (million dollar portfolio) isn't available to the little guy with the $5,000 portfolio.

For the little guy, buy 'em and hold 'em really is the best strategy.

[The Atheist]

I know several people who do make a living from purely trading forex markets.

They are, however, all career economists with a 10-20 year work history as forex dealers who have decided to reap the benefits themselves.

As an amateur coming in to the game, I'd say you'd have the same odds of success at the racetrack. (And at least you can get drunk while you lose your inheritance at the track!) If you have a little money you can afford to lose, there's no harm in a little options trading, but do look at it as gambling rather than a get-rich-quick scheme.

Beware strongly of any software sales which "guarantee you'll make money" out of it. Any software which does more than track for later analysis isn't going to be real or there would be no forex market.

[MoneySkeptic]

Every book I read, no matter how pleased I am with what I've read so far, always manages to disappoint me by teaching Fibonacci retracements or Fans or Waves or Gann's stuff. Even thoug some of them grant us they are self-fulfilling prophecies, nevertheless they spend too much on it and use it on their systems. It just makes the book less appealing/useful/believable to me.

Do you guys recommend any good book? If there's a book for skeptical environmentalists, there should definitely be one for skeptic traders and investors (hint, hint). That Evidence-Based Technical Analysis, I've heard about it before but from the reviews it don't look like the thing I'm looking for. Ok, so it destroys the candlestick patterns and whatnot, but what I'd really like to know is how skeptical traders are making money on forex or the stock market.

Pyrts, have you read any book that you might recommend to a picky skeptic like me?
The hold and buy strategy only really begins after you know what to buy and hold, and I don't know how to assess companies and their stocks.

I've been practicing Forex on the MetaTrader4 platform. It's probably the most used platform and the most generally known. Is there such a platform for demo trading stocks? I'd love to practice but I don't even know how to begin (it took me a while to find out how to begin in the forex market).

My goal is to live off trading and I'd really like to achieve that goal because I like the lifestyle and the free time it will give me. But I can't do it if I don't know why some things work and some don't.

The Atheist, are any of those people you know selling learning material or giving classes? I'd love to learn from them. They sure have a lot to share, and to make a little money on the side selling courses is never a bad idea.

I don't want to look at anything as gambling. I want to learn, however much time it takes, and trade like a professional - trade for a living. I'm not in a hurry, but I think I could do with some help and guidance.

Thanks for helping

[roger]

Graham - The Intelligent Investor (particularly chapters 8 and 20)
Philip Fisher - Common Stocks and Uncommon Profits, Developing an Investment Philosophy
Malkiel - A random walk down wall street.

Those three will pretty much give you everything you need (well, everything Buffett needed to become the wealthest investor on the planet). Top it off with something like Buffetology.

They aren't for "sceptics", but are simply based on finding unrecognized value in companies. Malkiel talks about various analysis methods and why they are doomed to fail.

[IllegalArgument]

Fooled by Randomness by Nicholas Taleb
Black Swan by Nicholas Taleb

[nescafe]

Malkiel - A random walk down wall street.

I cannot endorse that book enough -- it clearly articulated the doubts I had always felt when some book, friend, or scam claimed they knew how to "beat the market"

[MoneySkeptic]

Thanks for the book recommendations, everyone.
Now, why does it seem that most people here believe in the Efficient Market Hypothesis? Also, if one believes in the EHM, shouldn't that person not be trading, of all things?

Also, I think Buffet doesn't believe in the EMH, so he probably wouldn't have read "A Random Walk Down Wall Street", because it's a similar hypothesis to the EMH (and it seems equally unfalsifiable to me).

Anyway, I'd love to hear your thoughts on this.