03 Nov The “Best” System I Have
The “Best” System I Have
Nov. 3, 2021
I’m still surprised at how many traders still care deeply about win percentage.
I’m still surprised that I still care.
I’m surprised because win percentage doesn’t matter. Or matters very little.
For example, almost everyone in tennis would like to have a hard serve. (Just like every golfer wants to hit it long like Bryson).
Big serving looks impressive and feeds the ego.
But, when it comes to winning, it’s the least important thing a player can have. My favorite story is when Andy Roddick set the new world record for the hardest serve ever.
He hit it around 144 mph. And he lost the point.
Roddick hit it harder than anyone before him (his ego loved that), and his opponent just blocked it back and won the rally. The lesson? Serving hard does not directly translate to winning.
It’s the same for win percentage.
Yes, our egos love a a high win rate. (As do marketers.) It’s fun to brag how our system wins 90% of the time. But is it really something we should care about?
Back in 2010, I had recently discovered Forex and loved how you can use any trade size you want. I also loved how it traded 24 hours a day.
And, because of my competitive background, I never wanted to lose a trade.
So I started trading a system that never used stop-losses. I would get in a trade and take profit. Or I would get in a trade and, if it went against me, I would buy more (if I was going Long).
My thought was: if I wait for price to get Oversold then, on its way back to Fair Value, I could make a small amount of profit. Every time.
It’s like buying Bitcoin after a 10% drop. There’s no way we won’t make money after a drop in Bitcoin, right? It will always go back up. (Tongue firmly in cheek.)
And that’s what we did. Guess what?
It worked every time. We never lost a series of trades. (Note: if we took 5 entries, a few of them might technically be unprofitable. But the “series” of trades overall always made money for us.)
We would take an Oversold trade in the morning and have a profit by noon. We made 50% on our account in about three months and never had a single problem.
That’s why this methodology has to be my “best” system.
And it is. Until the drawdown comes.
I’ve told the story before but in May 2010, we got into some serious drawdown on some trades on the EURUSD. We thought we might be goners. And then we got lucky and a big Sunday gap up got us out of trouble and made us $10,000.
The picture at the top of the Wednesday Newsletter is an actual screenshot of that horrific trade closing out for a $10k win.
As it turns out, we were using a trade size that was way too big. Research showed eventually we would have been wiped out. Which is why we stopped trading it while we were ahead.
Then, years later, I came back to it and built a robot that simulated the way we used to trade. The big difference was trade size. The updated robot used much smaller entries to try to prevent losing the entire account.
And instead of trading any currency pair, it focused only on AUDJPY, EURJPY, USDJPY, USDCAD, and NZDUSD, and it only went Long.
It used Bands to determine when to enter and goes for very small profit targets. By waiting for extremes, the hope is that price moves back to “fair value” (the moving average) and produces a tiny profit along the way. The Bands were set to 650 Length with a Standard Deviation of 3. I told you it was extreme.
Did the new version work?
And here’s the Equity Curve:
Trading 0.1 lots each time and taking a max of 5 trades each time, it almost doubled a hypothetical $5,000 account since 2003. And even though the win percentage says 81%, it actually won 100% of each series of trades and created a perfect Equity Curve.
Yes, we win 100% of the time. But is it worth it? Is it really the “best” way to trade?
We’ll talk about that in the upcoming Newsletters.
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