A 1,000 RRR system!?

Hello All, I want to start a rather controversial thread here! This is my first thread and I consider myself a Junior trader. So it is a free for all thread. All I ask is do not flame people here, if this topic sickens you, please move on, no need to bring noncontributory comments that I will quickly frown upon or I will use my veto power to end you.

Please read to the end before you draw conclusions with your advanced trading theories. We are all here to learn mostly from those that went before us, not for them to rain fire on us.

I am a fan of Risk Management, special notes on position sizing and RRR (Reward to Risk Ration). Now this thread will go out of the way of normal trading as it border more on betting! Example, sport/lottery betting give as high as >=1,000 RRR. This is almost impossible on real trading, or I think so? This is the reason for this thread. Finding such crazy return system and refining it.

Some of us do bet on sport, I don't and I have been telling my wife I will rather be trading sport betting, let me explain. I think of it as a Distribution curve outlier system. Where the chances of hitting a trade/bet of 1,000RRR is at the tail, very very very rare. I think with trading we have a better chance as at least we will have a system trying to exploit an observed market tendency when sport betting is well, just guesswork.

Using trading knowledge, souped with betting tint, let's look at an example;

Say I finally find a market tendency to exploit for 1,000RRR, but has a very low win rate of 0.2-0.5%, that is 99.5 to 99.8% of trades you take are going to be losses.

Key Points;
1. To balance the account for recovery, we use a fixed amount allocation for position sizing not variable fixed percentage allocation.
2. This system will have to be automated so that there will be no execution error or second guessing trades, after all, how many people can trade a system with 99.5% loss rate with their emotions still intact?
3. Important point here is, will you even win any trade? Statistically, every trade has same equal chance of either win rate of 0.2% to loss rate of 99.8%.
4. This will never be your regular trading system, except you want to be homeless. Think of this as a side project, that can make you lottery rich if it works!

Note; in reference to point #1, I know that fixed percentage allocation will give the account an unlimited tries but given the win rate, it is going to be a slow death, more like death by a thousand paper cuts. Even if it wins 1 trade, I do not think the recovery will be worth it, maybe I am wrong!

Ok, so I factor I will likely win at least 1 trade out of say 500, that is win rate of 0.2%. So say my deposit capital is USD10,000, using fixed amount allocation, that is USD10,000 / 500 = USD20 per trade. Say I run this system, first 475 trades are losses, then an outlier occurs I win the 476th trade with 1,000 RRR. lets do the maths,
. As at this win, I still have some cash left from original capital; 500 chances - 476th trade = 24 chances left * USD20 = USD480.
. Winnings from 476th trade = USD20 * 1,000 = USD20,000
. TOTAL Gross Gain(Not counting trading cost, taxes, etc) = USD20,480.00

This is just educational, to ping ideas... I need your contributions...is there even a market tendency to exploit for 1,000 RRR?

Martingale trading systems don't work in the long-term. This is a fact. There are many serious probability books written on the subject.

I suggest you find a way to trade where your win rate falls between 40-60% and your reward to risk ratio falls between 1.5 to 2.5 (i.e., making 1.5x to 2.5x what you are risking). Go all-in / all-out at first. Then, you can look into ways to add to trades as they go your way.

I appreciate your reply. Martingale trading systems? We are not playing double the bet size here! We are using fixed amount all through!

okay it seems 1,000 RRR vs 0.2% win rate seems too extreme till many don't know where to start commenting! How about 500 RRR vs 1% win rate? I wish creative traders here can contribute with eagerness to see if this can really work. This deviating from the norm of 20% return per year is great! I know some traders that are doing >=20% monthly, on personal account, the law of small size is with you, I am not talking about managed funds. So why not push the envelope to insane discussions level...

Food for thought - A Las Vegas casino reported that red came up consecutively over 70 times.

Dear danasa,

That is interesting, 1,000 RRR @ 0.2% win-rate. This is what the expected equity (in red) would look like.


After 364 losers, the one trade was hit. Long loser runs of over 900+ can be expected and my example uses -$10 for a loss and +$10,000 for a win. Therefore, you can see the account was slowly bleeding to -$4,000 before finally a winning trade.

Here is something to consider: Over time the market may change, affecting your win-rate. If 1 trade is taken per day, it is expected to see one trade hit TP at around 300+ trades (on average) and the win rate is shifted to 0.1% (half) by the time the more trades are taken. A larger run of losses can be expected of over 1,400 losses in a row. After maybe 900 trades (when including other costs), the 1 winning trade will no longer return a profit. It can take a long time to even see profit again, but time+ opportunity cost would have been lost. Example below is of a generated 1422 trade losing streak @ 0.1% win-rate.


You could try to focus on a more consistent higher win-rate, and aim for RRR of 20-200, which seems already very high in terms of a single trade outcome.

Best of luck and hope these help,
Kind Regards,
Tzamo

IMO two major problems 1) for a system like that to work you would essentially need to be able to trade on mid prices otherwise the spreads would kill you.
2) you assume the the 0.2 - 0.5% Chance of the trade working out is evenly distributed which is simply not the case in reality - see handy148‘s comment above

but nice thought experiment nevertheless. You would essentially need to ride the wave on a big trend and let’s say you want to have your 500 to 1 RR with accepted risk being 1 pip you would need to gain 500 pips. So in the ideal world where spreads don’t exist you would probably just want to open a new trade every 2 pips or so with 1 pip S/L ideally during some kind of events like elections etc that could bring a large trend. And then hope you pick the exact top/bottom before your equity runs out. But again purely as a thought experiment bc spreads etc would kill any chance of that working in reality

That's what I am talking about, smart guys steps in...now I am excited!

Now using your testing as above ramp up to see what combination of Win Rate preferrable below 5% will make sure that you have a chance of winning one trade...you can equally play with the RRR variable. The idea is to end up with an outlier system with acceptable odds by playing whit the two main variables here of RRR and win rate %. Basically a system with a draw-down that will not likely ruin you before you win out of the pit of draw-down. Remember I said this is more of a betting system than a trading system...you would be insane to take this as your trading system...i keep warning...

By the way, your explanation above is cool.

ProjectM, I am not saying "the 0.2 - 0.5% Chance of the trade working out is evenly distributed...", in fact I am saying the opposite, it is very rare win case, the tail of normal distribution curve, rarity. The idea is to use extreme RRR to compensate for very low win rate.

On the technicality of plausibility of such a system in a real trading environment, i am look at the second part of this thread. the first part is for us to factor and agree or disagree if this madness is even doable... When the maths and odds are in place we start talking about trading style to try and achieve such extreme RRR. You see, even if this doesn't work out as a practical system, we will learn valuable lesson before this is over!

Thats not what i meant in regards to the probabilities. I mean from what you wrote it sounds like you assume the event with a likelihood of 0.5% will occur within the first 1k tries. This might not be the case - it might me try 1, it might be try 10.000. in order to properly run the numbers on this you would first need to define a confidence interval in order to specify how sure you want to be that the event occurs. And once you have that you can figure out how big your account needs to be in order to run that strategy.
So in a nutshell what I am trying to say is that a strategy that looks for outlier events like this will have insane PnL volatility even if it has positive EV in the long run.
But still if you want to explore the idea I think the first step should be to specify the parameters a bit more (especially the probability of going bust that you are willing to accept)

Too much trouble just to double up...
There´s people in Forex (not me) that make 40,50 % some days...yes believe it or not...1 pair, 5 minutes chart, know-how..

Take a 1M chart, look for a trading opportunity,enter with a 5 pip stop, move to BE after a while let it run "forever"...1000 pips?

There used to be a thread, an engineer guy, he would do something similar, though he would stay on a monthly trend for 1 or 2 years, and keep adding positions..".milipeed thread."..he would get stopped, maybe BE, maybe a small loss, on maybe 20 tries, the ones that survivied he would keep for a couple of years he would accumulate hundreds of legs on 1 pair...massive profits...
Just different ways of cooking the panckake lol..

This is the type of comments that kills a thread, who said it was about doubling up? that was an example, we do not even have rules yet to explore this odds. Again, if you read up, it is not a trading system in regular term, people go to do sport betting everyday throwing away money on virtually negative expectancy.

This was to bring the betting money to something a bit more controllable, this rather a betting system, if this works, better for those playing sport betting to use it than to throw away at online betting shops.

And as for doubling up...what if it was 2 wins in 500 tries? This is rather an educational pursuit, i was expecting members that have good idea about odds and stats that will make this look a better betting system compared to regular blind bets!

As for betting rules, we will look for market tendencies to exploit for high RRR, what if I told you there is a system to do 100RRR right now? leave betting/trading rules/system out now, if these odds are not resolved no need.

1000RRR is certainly possible in my opinion. I would look at a pair with positive swap, because you will have to stay in this trade for a long, long time.....I would only choose a trending pair....
then I would look for a pair which is at a high/low for say the last ten years. if it breaks the high/low, you can place your trade with your stop loss.....the stop loss cannot be too high, otherwise you wont reach your 1000RRR....on the other hand your stop loss might be triggered and price moves in the intended direction without you on board.....so you`ll have to look in the past what kind of stop loss would be appropriate... good luck

1,000 RR doesn't exist in reality. You can have it in a dream.