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!
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I don’t know if Mark Douglas’ education applies here or whether it’s outdated, but I can’t understand how that statement is even possible!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.
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?