SCOTT WELSH TRADING BLOG

Ruining The 100-Bagger

Ruining The 100-Bagger

Dec. 4, 2013

Last Wednesday we looked at how a long-term investing approach can pay off, if you call “paying off” increasing your account by over 5,000%.

Specifically, we took the USDJPY and traded a basic trend-following system. At the end of each week, we looked at our account and increased our betting 10% every time the account went up 10%. This process turned $10,000 into $567,000 in just over a decade.

The question then becomes: Why isn’t everyone doing that? The first answer is: Every long-term investor should! The numbers I showed are mathematically viable, tested tens of thousands of times. While there are no guarantees, it is probable that the USDJPY will perform in a similar manner going forward.

But here’s the problem. There are at least ten different ways to ruin that 5,000% gain. At least ten.

And this week I’m going to look at the easiest way to ruin your 100-bagger.

Understand first that, to get a 5,000% return on your money over an eleven year period, you have to trade the USDJPY every day (Monday-Friday and part of Sunday).  If you did that, the raw profit gained over that 11-year period would be $44,671 with a maximum drawdown of -$3,957 (this doesn’t use any compounding and trades just one lot each trade). For that money, that doesn’t seem too tough.

But unfortunately, most people have a life. Most people can’t be available every trading day for eleven years. What if, for example, your job makes it impossible to trade on Fridays? No big deal, right? I mean, who really wants to hold trades over the weekend anyway?

Here’s the big deal. If don’t trade at all on Fridays, the overall profit falls to $33,945. That is $10,726 decrease in profit. That’s huge! And hard to take. You were totally disciplined for five days, and yet your profit fell over ten grand. That’s not fun.

Or, even worse, what if your job calls for you to travel at the end of most weeks, rendering you unable to trade on Thursdays and Fridays.  The result? If you skip Thursdays and Fridays, your profit falls even more, dropping down to $29,571 (a $15,100 decrease). Yikes!

Or maybe you have family commitments. You’ve prioritized your life in favor of trading but Sundays are not negotiable if you don’t like divorce court. So now your family has taken Sunday and your job has taken Friday.  Does that affect anything? By taking Sundays and Fridays off, your profit diminishes down to $27,820, an even bigger decrease of $16,851!

Or lastly, what if you miss two weekdays a day apart? What if you have to pick up your kids on Wednesdays and travel on Fridays? If that’s the case, your profit falls down to $26,103, a “loss” of $18,568!

The worst thing of all is that these numbers don’t even take compounding into consideration. If we did the same compounding we did to get the 5,000% gain but didn’t trade Wednesdays or Fridays, we would turn $10,000 into “only” $115,292. Still a 1,000% increase, but not even close to the $567,000 we achieved by trading every day of the week.

In short, by not trading Wednesdays and Fridays, we lost over $400,000!

The 5,000% gain is possible, but not trading every single day would ruin it. So how do we get from here to there?  Well, you could make yourself be at the computer every day for a decade.

Or you could use a Robot. A Robot will never take a break and never stop until you get to where you want to go. A Robot could get you that 100-bagger.

Glad to hear you say that, sir.

Robot! I told you never to interrupt my Systems Reports. You are only allowed to participate on Fridays.

Very sorry, sir. Just notify me when you are interested in making 5,000%.

 

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.