The Losing Run

Filed under: Learn Forex Trading |

Many beginners often experience a bad losing run of trades, panic – and then quit! However, losing runs are an inevitable part of trading forex and you should expect some periods where you have loser after loser. Let talk about this by way of a couple of examples…

 

Let’s say that you always have a risk-reward scenario of 1:3 and you have a winning percentage of 30%. Now to begin with, a 30% success rate might not seem very good to you, but over one-hundred trades, that would work out as a 20% rise on your bank if you risk 1% of your bank on each trade (70 losers (-70%)+ 30 winners (+90%) = +20%). And with a 30% success rate over 100 trades, you can expect a losing run of up to a massive 13 trades! A run of thirteen trades in a row would be really hard to take, but the law of probability tells us that such losing runs can and will happen. Over a thousand trades at the same winning percentage, a maximum losing run could be up to a massive 19 losing trades in a row! However, over the long term if you keep the same winning percentage, you will be profitable. And that is what we have to remember, that our edge will only be beneficial to us in the long term.

 

Just to hammer this point home, if you flipped a coin you would have a 50% chance of success, and if you bet 100 pounds on each flip, over the long term, you should break even. However, over 100 flips, you could expect to be wrong up to seven times in a row. This is why we must always think in the long term. Trading is all about finding an edge, and exploiting that edge over a long series of trades. If you intend to give up after a losing run, then you might as well not trade at all.

 

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