Why most investors lose money in FX? The bitter truth
Even with a comprehensive search of this issue, you will find that there are very few of them and most trades do not live to 5 years. Even if the strategy was profitable to begin with, it begins to lose money after a certain period. This happens mainly for a few reasons:
1. The strategy is based on the principle of martingale, grid or averaging.
Over many years, our team has tested a huge number of strategies that are available on the Internet and on various resources. We’ve tested the best of them with our own money and I must admit that almost all of them, sooner or later, lost money, despite the fact that we carefully studied the strategy and trades, and tried to take those which had the live track record at least 1 year or 1.5 – 2 years preferably.
Many times the strategy had excellent results, the trades logic and everything was fine but as we started to test with our money it began to drain the deposit in the first month. And it was not the only case, it’s Murphy’s law in action.
In any case, strategies based on Martingale, grid, and averaging are not worth paying attention to, from our experience. There were a lot of them in our research, they have great statistics, but all of them were profitable for a while, and then started to lose money. But I can see that most investors still do not realize this and invest without understanding that this is a highly risked investment and the probability of losing is much greater than making money.
2. Many fake track records on the market .
Basically, if we saw high profitability, no loss-making month and an offshore broker, we were wary of this. As many brokers forge results for some trader and collect investors’ money for these results or it is based on the Ponzi scheme ( A Ponzi scheme is a fraudulent investing scam which generates returns for earlier investors with money taken from later investors. Ultimately, the investors lose money). Be careful, there is no miracle in this business.
3. Overestimated return expectations of investors
This is a very topical subject! Most investors are chasing high profits. High is about 60-100% return per year. This is an average monthly return of 5-8%. Dear investors, pay attention to the big players, if many of them have a return per year of 60-100%? Their return is on average 20% per year or even lower.
In our experience, if you are chasing a 60-100% annual return, you will lose your money partly or even all or all of them. There are no such results in the long term. Yes, there are strategies that can bring you more than 100% even less than in a year. But show me where these strategies are after 3-5 years, where they are? They do not work. If you are looking for 60-100% per year, then you are not an investor rather a player and perhaps the casino will suit you better.
The real return on which you can count in the long term and to sleep at night in peace is about 30% per year, in some years it’ll probably be more, but it depends on a favorable market. Honestly, it is worth mentioning that there are strategies like HFT which have a high return and we have used such strategies, but now it is hard to find a broker who will allow to trade HFT. Even if you find one, it doesn’t mean that it’ll be working, it should be tested at first. We also had our own strategy that brought about 300% per year (without martingale, grid or averaging) for two years in a row, but it hasn’t worked for several years because the market has changed.
4. All strategies have favorable and unfavorable periods in the market.
We have seen strategies that have had 2 years of successful track records in their real accounts (without martingale, grid, or averaging) and then had losses for 7 months in a row. Our team’s experience shows that all strategies need to be monitored, even if they are fully automatic. The professional manager takes into account the changing market and the news factor.
If the strategy begins to lose money constantly, then you should either turn it off or reduce the risk because it is not clear if it is temporary or if the strategy has died. Alternatively, you can run another strategy that works well during a given period. Our team doesn’t believe in 100% totally- automated trading; we turn our strategies on and off manually when we see a risk (all our strategies are based on algorithmic trading).
5. Successful strategies
I would like to say a few words which strategies are worthy of attention and have chances to be successful in the long term. I will write a thing that is based on our many years of experience testing a large number of absolutely different strategies, and those that we use to manage our clients’accounts now, as well as we follow the new strategies every day.
What really works:
Our team members have 13-15 years of experience in the FX market; we have gathered the two most effective strategies that we have ever met and that have been profitable for a long time among a huge variety.
The strategies are based on the principle of Mean reversion. This is our flagship strategy “HARMONY “. The strategy works for several hours in an Asian session, based on the principle of Mean Reversion. This is an Asian scalper. A strategy without martingale, grid, averaging elements, what is very important. Stop-loss in every trade. Works with brokers with the tight spread and good execution with low slippage. This strategy brings us profits on real accounts from 2016 (on myfxbook statistics from 2017) and has a low drawdown.
Volatility breakout & Support/Resistance levels breakout strategies also work. As an example, this is our strategy “Bluesky”, a scalable strategy, that has a track record of over 5 years. Although we have been using it on our real account since 2015 . An excellent long-term strategy and not so sensitive to the broker’s trading conditions.
We also have News Trading and Arbitrage. Conditions with the client are discussed individually.
Strategies based on Mean reversion, Volatility breakout & Support/Resistance levels breakout, News Trading and Arbitrage are all that has been on the market for a long time and deserve attention, as our experience shows. If you have other examples of successful strategies, you are welcome to write about them and discuss it with me.
The information in this article may upset some of you. But the bitter truth is better than losing your investment. Have a good day and thank you all for reading the article, I hope it will be helpful and maybe even increase your returns on your investments.