Is 95% LOSE rate a profitable reality?


I was invited to “trade” a few months ago. Just realized I wasn’t trading but actually betting (illegally?). Learned what the term “bucketshop” meant, too. Got out of that in a jiffy and glad to have found a legit and regulated NADEX. Apex is my new home and I like it! :cool:

I’ve been listening to Mark Douglas (author “Trading In The Zone”, “The Disciplined Trader”, etc.) for a while to get my mindset right. He says that trading is full of paradox, like:

  • the worst traders are doctors, lawyers, engineers, scientists, CEO's
  • if my method produces a high percentage of winners, then it equates to consistent income
  • trading patterns, which ALWAYS have a random outcome, can produce consistent results
  • If learning how to enter a trade and win can be done in a weekend, then learning to be consistent must not be that much harder.

…well, one of the paradoxes he noted which piqued my interest was [FONT=times new roman]“You don’t even need more than a 50% win/loss ratio to be profitable. FACT: 95% of Richard Dennis’ trades were losers. The 5% winners were MONSTER winners.”[/font]

I don’t know if Mark Douglas’ education applies here or whether it’s outdated, but I can’t understand how that statement is even possible! Assuming your risk is the same for every trade (trading NADEX binaries) and you lose more times than you win, then your account balance should be ugly. But the statement implies that it’s possible to lose more of the time and actually be profitable when you lose 95% of your trades AS LONG AS YOUR WINS ARE HUGE.

what??? :confused:

Sure, if I had a crystal ball and I could know which trades were going to be my winners, of course I would go in with large position sizes only on winning trades. But there is an understanding that trading is a probabilities game with random distribution of wins and losses, right? So, I really CAN’T know which trade is going to be a winner, and so I can’t increase my position size on winning trades because I can’t know ahead of time which ones are the winners.

Am I missing something? Am I misinterpreting the statement or maybe Richard Dennis was an outlier…a rare trader?


Richard Dennis was with the turtle traders. Which have had a rough time as of late. The story is great but the system is is not all its cracked up to be. ie dennis was down 10 million before being up 80 million wow thats no so bad you say… but to do that how big was his account to begin with etc… like you said the drawdowns alone could kill you. They where trading futures. They has very very small risk tight stops. if a trade worked they ran with it and had monsters. ie 5 ticks risk and 50 point multiday profits etc… The ability to have the psychological strength needed to stand that kind of loss is rare.

On nadex binaries the cap value is $100 for a 95% loss you would be breakeven if you bought at 5 or sold at 95 and lost 95 out of 100 the win ratio would have to increase for there to really be some profit by only by a little and that is if you coudl take the drawdown and psychological damage.

The point douglass is making that profitability OR probability have to be the edge it can’t just be one. They balance each other out. The higher profitability you need with the lower probability you have.

The most challenging thing is choosing the discipline of consistency and proper risk management. A system is easy self control there is the challenge.


I’ve heard of the turtle traders. Haven’t read up on them, yet. Nutshell: they took a handful of average dudes off the street to see if it was possible to teach them trading…and a few made the cut–and became bazillionaires, right?

Oh, I see. If you weren’t winning enough times (or maybe just wanted to squeeze more out of the wins), then something would have to give. In Richard’s case, he pushed his risk tolerance (mental part) really far.

Cool…you correlated it to NADEX binaries! :o So it would be like being willing to lose many $5 buys in a row, waiting for that one time to finally win that $95?

Not that I would adopt this as a strategy (sounds like using a Hail Mary pass as a strategy!), but let me see how it breaks down:

$95/$5 = 19 trades possible

After 18 trades, I would have lost 18 x $5 = $90. On that 19th trade, I risk the final $5 which, if I won, I would profit $95…and my balance is restored. Wow…not sure it’s worth losing so many times to get that much profit ($5 turned into $90)…1,800% return on investment, but I had to risk $95 to get $90 – risk/reward ratio of 1:0.9

I analyzed this scenario a lot! It’s a strange way to trade; I see it now.


You got it…


There are two things that accomplish this. 1) Higher Reward to Risk levels and 2) Adjusting position size (Labouchere developed a number cancelling system). I think it was originally designed for gambling where you had around a 50/50 chance of winning. I think with his system you only had win 34% on 1:1 Reward to Risk. If you use that with a Reward to Risk of say 3:1 you would only have to win around 10% of the time to breakeven.


All depends on payout binaries have capped profit.