I have been talking to an investor who has been asking why I take positions that are not even 0,5% of the account. Although he enjoys the performance, he is wanting a higher return on his investment. I shared with him a few statistics that I share with many retail traders that are looking to make the transition to a 'full time trader', trading for a living.
If you want to trade for a living, you have to think long term.
- Assuming you take 4 trades per week, this will result in around 1000 trades after 5 years.
- If you know that your winrate is going to be 50%, which is a very reasonable and acchievable asumption, what are the probabilities of a series of 3, 4, 5, 6, 7, 8, 9, 10..... consecutive losing trades?
- You will lose every 2nd trade that you take over the long term. The math is easy here:
2 consecutive losers: 0,5*0,5 = 0,25 = 25%
....
5 consecutive losers: 0,5*0,5*0,5*0,5*0,5 = 0,031 = 3,1% (not high at all, right!?)
10 consecutive losers: 0,5*0,5*0,5*0,5*0,5*0,5*0,5*0,5*0,5*0,5 = 0,001 = 0,1% (this is so low, why even bothering, you might think)
- But what does this mean over the course of 1000 trades?
5 consecutive losers will happen to you: 0,031*1000 = 30 times (every 40 trading days)
10 consecutive losers will happen to you: 0,001 * 1000 = 1 time
- What if you risk 2% per trade? (most see this as a safe amount)
Having 5 consecutive losers means losing 9,6% of your account (every 40 trading days)
Having 10 consecutive losers means losing 18,29% of your account
- What if you risk 5% per trade?
Having 5 consecutive losers means losing 22,6% of your account (every 40 days)
Having 10 consecutive losers means losing 40% of your account (This means you have to recover 66,6% - how long will this take you?)
I hope you get the idea and I hope I can make you think more long term. Because, when you want to trade for a living you have to think long term!
If you want to trade for a living, you have to think long term.
- Assuming you take 4 trades per week, this will result in around 1000 trades after 5 years.
- If you know that your winrate is going to be 50%, which is a very reasonable and acchievable asumption, what are the probabilities of a series of 3, 4, 5, 6, 7, 8, 9, 10..... consecutive losing trades?
- You will lose every 2nd trade that you take over the long term. The math is easy here:
2 consecutive losers: 0,5*0,5 = 0,25 = 25%
....
5 consecutive losers: 0,5*0,5*0,5*0,5*0,5 = 0,031 = 3,1% (not high at all, right!?)
10 consecutive losers: 0,5*0,5*0,5*0,5*0,5*0,5*0,5*0,5*0,5*0,5 = 0,001 = 0,1% (this is so low, why even bothering, you might think)
- But what does this mean over the course of 1000 trades?
5 consecutive losers will happen to you: 0,031*1000 = 30 times (every 40 trading days)
10 consecutive losers will happen to you: 0,001 * 1000 = 1 time
- What if you risk 2% per trade? (most see this as a safe amount)
Having 5 consecutive losers means losing 9,6% of your account (every 40 trading days)
Having 10 consecutive losers means losing 18,29% of your account
- What if you risk 5% per trade?
Having 5 consecutive losers means losing 22,6% of your account (every 40 days)
Having 10 consecutive losers means losing 40% of your account (This means you have to recover 66,6% - how long will this take you?)
I hope you get the idea and I hope I can make you think more long term. Because, when you want to trade for a living you have to think long term!
Learn from yesterday, live for today and hope for tomorrow.
In my schoolbook its a place where supply exceeds demand therefore a supplylevel. If you look closely, the whole chart is filled with supply demand levels. You just need to filter the good levels out. I purely trade supply and demand levels with some fib filtering.
