This topic caught my eye and as Ive been trading and building forex systems for the past ten years for both private and retail applications, and suffered through the learning experience like everyone else has who's gotten this far, I thought my opinion would be appreciated on this thread.
Is forex a gamble ? For most people it is if by the definition of 'gamblers' you mean losers and I use the analogy of a Casino to explain.
'Most folks' walk through the doors with stars in their eyes and dreams of taking the house to the cleaners. But, as we all know Casinos are built on a house of losers and its usually the house taking the gambler to the cleaners.
However, there do exist card counters, they take a mental note of the cards laid out on the table and use their mind to mathematically determine the odds of certain outcomes and bet accordingly. Over time, the benefit of this consistent 'edge' plays out into their favour. They are not 'most folks'.
How it applies in forex trading is exactly the same.
Traders (gamblers with a forex trading habit) need to consistently apply a profitable edge and one that is sufficiently profitable enough to overcome the inefficiencies involved in the FX market, including but not limited to spread and slippage, which eat into the expectancy of a profitable trading edge.
Most folks don't trade with a profitable edge and even when they do, they either don't realize it and discard it on a losing run or can't apply it consistently enough to realize the longer term benefits.
The question that arises next is obvious, what defines a profitable trading edge ? It is one of the single most important questions you should be asking yourself (if you haven't already) and I can but tender my definition as the minimum required standards;
1) greater than 10:1 return to drawdown ratio over a minimum 10 year to date backtest period using fixed lots per trade (which will be problematic/not applicable with systems that use variable pips SL and too much to go into detail about here)
2) tests conducted with realistic spread and volume commiss
3) tests using appropriate data modelling type, ie ticks for tick system bar open for bar open system, bar open systems run on ticks showing very nearly same result as bar open data.
4) minimum 1000 trades sample.
5) minimum 2 pips expectancy and ideally above 3 (net expected profit per trade factoring all winning and losing trades)
6) no martingale grids (although I dont completely rule out such system if designed with equity stop loss which can be hit repeated and recover from over extended period, which I only know of one system)
7) must work on minimum 6 currency pairs meeting all the above mentioned minimum standards
8) must have live fwd history not exceeding previous maximum drawdown or stagnation period (period between new equity highs), which if exceeded the system can be said to have failed.
That's what determines a profitable trading edge to me and I haven't yet seen a system built to these minimum standards fail by measure of the definition above mentioned. I can also say that I don't often encounter systems that meet these minimum standards either, I know of less than 5 after 10 years in FX and yet that is what 'most folks' seek to make profit with when trading FX. Most (but not all) good systems just never reach retail traders because systems can then be copied, stolen by hackers, distributed and/or otherwise abused.
I favour automated algorithms because at least technology can be consistently applied. The human mode with discretion is prone to failure if for no other reason than lack of consistency. And let's face it, if a system is truly profitable then it can be programmed into an algorithm and shouldn't need human intervention. If a system does not even stand up in a backtest, think about the disadvantage that puts you at out of the box ! Good luck with that because that's what you'll be needing. That's not to be confused with my opinion that an experienced trader can successfully intervene using judgement and improve a systems profitability, but its complimentary - not the difference between profitability and loss stand alone.
Thats my 2 pips worth and I trust it helps you make more informed decisions in FX than 'most folks' do.
New Millennium Inc