The Danger Of Wanting More

Feb. 15, 2017

On paper, the logic seems infallible.

If one doughnut is good, three is better!

If working out for fifteen minutes is good, six hours is tremendous!

If having one wife is good, then having four is fantastic! (maybe that’s a bad example).

The same goes for trading. If I have a system that works and trades the way I like–and that system trades about 50 times a year–then more trades would definitely be better, right??

Well…

One of the hardest life lessons I’ve ever had to learn is that less can be more. In fact, more of something usually makes it worse.

For example, three doughnuts are not better than one. If you must have a doughnut–and I believe these moments exist–having just one (or half of one) is a lot better than having three. Three can make you sick or sluggish or worse. Plus, three doughnuts can be over 1,000 calories, and more calories is almost always not a better situation.

The same applies to working out. In the past, when I saw good results from working out for about 30-40 minutes, I immediately thought that an hour or more could produce even better results. Similarly, when I was working out three times a week and saw improvement, I thought that five days a week could double my progress.

Of course, that was wrong.

Think of working out like getting a suntan. If you get out in the sun for 10-15 minutes, you get a nice, warm color to your skin. If you stay out for two hours, you look like a lobster, but only until you start peeling like a snake.

When working out, you need to do the least amount possible because the body needs rest. If you work out too much, you “sunburn” your muscles and can actually hurt yourself.

I’m not going to comment on having three wives. Let’s just say it’s not for me.

Going back to trading, it’s so easy to think that adding more trades will add more money. If 100 trades in a year makes me $5,000, then 1,000 trades will make me $50,000!

But let’s look at an example.

Using the Fair Value system, let’s look at what happens when we add more trades.

Because the winning percentage is so high, and because 98% of the series of trades go profitable within a week, it would be easy to want that system to trade more. It wins all the time…let’s add more winning!

The problem, as we’ve talked about before, is that trading more brings more bad opportunities into play. If we cross a freeway once a year, we have a good chance to make it to the other side. If we cross two times a day, there’s more of a chance we’ll get clipped.

Same thing for trading. If we get into more Fair Value trades, the likelihood of a big drawdown becomes greater and greater.

Using the NZDUSD Fair Value robot as an example, the normal settings from the course recommend waiting a long time for price to move far away from Fair Value. By waiting a long time (and not getting many trades), we’re waiting for certain circumstances to occur and then trading in that environment.

Keeping to the NZDUSD, if we use the regular, patient settings and 0.1 lots for each trade, we get a hypothetical profit of about $3,500 and a max drawdown of about $870 (on a hypothetical account size of $6,000-$8,000). However, we only get 621 trades. That’s only about 3 trades per month.

That doesn’t seem like enough trades for something that wins so much. Let’s get some more.

This time I ran a test but I changed the parameters so that I got in a trade much faster. This time, I only waited for price to move half as far from Fair Value as I did in the original. By waiting for less extreme conditions, I get a ton more trades.

How did it do?

By waiting half as long, we got more action. This time we got 2,166 trades! That’s better!

How much profit did we get? $6,400! That’s better!

How much drawdown did we get? $10,683. Uh oh.

If we keep the same account size as our original, that drawdown means we lose everything. We get more trades and we get more profit, but we also get a busted account.

Turns out there is a huge advantage to doing less.

That not to say there’s anything wrong with wanting more. Why wouldn’t we all want more money?

But we need to be sure we stay disciplined.

If we find something we like, something that works, we’d be well-advised to not try to make anything more out of it.

Disclaimer:
It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples presented on these sites are for educational purposes only. These set-ups are not solicitations of any order to buy or sell. The authors, the publisher, and all affiliates assume no responsibility for your trading results. There is a high degree of risk in trading.

HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.