Very interesting thread here. As a new forex trader, I've been so overwhelmed with all the information available about trading that my head began to spin. I've decided that for my own trading strategy, I would give priority to developing a good money management plan. I'm of the opinion that someone with good technical analysis skills and a poor money management plan has a higher probability of failure than someone with a strong money management plan. Can profitability in trading exist simply with a sound money management strategy and a coin toss?
I'd like to run an experiment with a demo account someday using a coin and a simple money management plan to see how it pans out. I believe in keeping things simple, so maybe something like the following:
Toss coin.
Heads=long 1 lot
Tails=short 1 lot
Risk=20 pips
Reward=80 pips
With the odds of a head or tail coming up at 50%, and my money management risk/reward ratio at 4:1, I would have to be wrong 4 times to every 1 time I was right, just to be even. If I was right 4 times, I would have to be wrong 16 times to break back to even. Shouldn't I be profitable in the long run with this simple money management plan and a coin toss?
I'm still very new to trading but it appears to me that a good technical analyst should do better than a simple coin toss and will improve the odds of a trade moving in his favor. I realize I've simplified this and haven't taken into account spreads and interest costs, but you get the basic idea. I'm sure something like this has been discussed and debated already but I haven't stumbled across it yet in this "sea" of information. I'd love to hear everyone's thoughts.
I'd like to run an experiment with a demo account someday using a coin and a simple money management plan to see how it pans out. I believe in keeping things simple, so maybe something like the following:
Toss coin.
Heads=long 1 lot
Tails=short 1 lot
Risk=20 pips
Reward=80 pips
With the odds of a head or tail coming up at 50%, and my money management risk/reward ratio at 4:1, I would have to be wrong 4 times to every 1 time I was right, just to be even. If I was right 4 times, I would have to be wrong 16 times to break back to even. Shouldn't I be profitable in the long run with this simple money management plan and a coin toss?
I'm still very new to trading but it appears to me that a good technical analyst should do better than a simple coin toss and will improve the odds of a trade moving in his favor. I realize I've simplified this and haven't taken into account spreads and interest costs, but you get the basic idea. I'm sure something like this has been discussed and debated already but I haven't stumbled across it yet in this "sea" of information. I'd love to hear everyone's thoughts.
Hemico
If you're not having any fun, you're doing it all wrong!