Are you Looking for the Holy Grail of Trading?

What if I was to offer you, for a very low fee, a trading system with a guaranteed 90% win rate using Binary Options?

Would you be interested? Should you be interested?

I’m not certain of the answer to the first question as I don’t know if you would be interested. However, many would be.

Of the answer to the second question I am certain. You should not be interested.

I’ll go further. If I or anyone else makes you a similar offer then close your browser, unsubscribe from the email feed, walk away … whatever it takes.

Why? Because they are not telling you the truth. They are offering the impossible. It’s the equivalent of offering you the Holy Grail.

The Reality of the Holy Grail

The legend of the Holy grail, or more precisely, the search for the Holy Grail, has its origins far back in time.

The story is usually intertwined with Christian beliefs – most commonly that the Holy Grail is the cup that Jesus used at the Last Supper on the night before his death.

It was a popular story in the Middle Ages and is bound up in legends such as the story of King Arthur and the Knights of the Round Table. However, there are also reflections of the legend in other stories and religious cultures, some of which are even older.

The common essence of these stories is that the search is a search for perfection. But this perfection doesn’t exists in the external world.

And so the search is ultimately futile and usually destructive for the searcher. There are no happy endings to these stories.

The realisation is that perfection cannot exist in the outside world but can only exist in our minds or in our inner perception of the outside world.

The somewhat ironic insight is that the search must be for something within ourselves and that the Holy Grail is found when this state of inner peace is found.

The Holy Grail and Trading

You can make of this what you wish. What we know is that the stories have been around for a long time but this has not meant that books of a similar theme are not a rich ground for modern authors.

They’re not really to my reading tastes but millions buy them and seem to enjoy them. For the most part they are pretty harmless and mildly entertaining.

But the story of the Holy Grail can be both seductive and damaging. Nowhere is this more commonly seen that among vendors of trading systems. And Binary Options appear to be among the worst.

These offerings appear in many guises and few would actually use the words ‘Holy Grail’. After all, surely only the most gullible would sign up for a service that advertised itself as ‘The Holy Grail of Trading’?

But that is effectively what so many do. These offerings from products or services that offer 90% wins, or services that insists that you can earn a second income passively or by trading for 5 minutes a day, or so on. You have seen the ads.

They are offering the Holy Grail, the impossible.

The Pursuit of High Win Rates

Let’s just look a little closer. What would a winning rate of 90% mean in terms of your trading returns?

Let’s say you start with a fund of $300 and a broker account with a minimum stake of $5. You’re a fairly active trader with an average of 4 trades per day and you trade on 200 out of the possible 230 trading days in a year.

You are fairly risk averse so you place a stake of only 2% of your fund on each trade and you do not hold trades overnight. So, given that your trades will not usually fully overlap you probably have a maximum of about 5% of your fund at risk at any time.

You stick to the most liquid markets so you manage to achieve an average payout rate of 75% but your broker does not pay anything back on losing trades. That’s a fairly typical description of a trader using good risk management.

On your first trade you expect to win $3.45 i.e. a 90% chance of winning $4.50 less a 10% chance of losing $6. So your expectation from this system is that you will win $3.45 for a risk of $6 i.e. a return of $9.45 for every $6 risk.

After 1 month, i.e. 21 days of trading with 4 trades per day, your fund will have grown to $784 and you will be risking $15.50 on each trade. It may still seem quite small in terms of the amounts of money, but there is something extraordinary happening here.

After 3 months of trading every day possible you will have grown your fund to over $5,350 and will be risking over $105 on every trade. Does this still seem like a reasonable expectation? After all, you are following a very good system aren’t you?

Now let’s say that you continue to trade for 200 days covering a year and you continue to achieve a 90% success rate. What will your fund be worth now?

It may surprise you to hear that your expected fund will now be over $2.8 million, you will be risking over $55,000 on every trade and earning almost $130,000 per day!

Does this still sound like a reasonable expectation? Of course not.

You would be earning a phenomenal return, far above what is earned in financial markets. And for what skill exactly? All you did was push a few clicks on your mouse.

And from whom are you earning this money? From a broker? They’ll soon go out of business as word of this magnificent system spreads.

From other traders? Given that you started with $300 and turned it into $2.8 million in a year, this means that 9,390 other traders of a similar starting size to yourself had to lose all their money just to provide your earnings.

So if you believe these claims then you are expecting to be among the top 0.01% of traders. You are 1 in 10,000 when it comes to trading.

Why are you expecting this? What special skill do you have? Surely word will soon get around and many, many others will use this system.

And if this system is so successful why is the developer selling it at all as it will effectively collapse the industry if it is widely adopted? Why don’t they just trade it for a few years and retire fabulously wealthy?

After all, after 2 years of these kinds of returns you would be the richest person in the world!

It doesn’t make any sense does it? Of course not.

What is a Reasonable Expectation?

So, if an expectation of 90% wins is outside the bounds of reason, what is within reasonable expectations?

How about an 80% win rate? If we rerun the earlier simulation using 80% wins, we find that it has a big impact on our earnings but with our fund growing to almost $180,000 in a year it’s still far beyond the bounds of a reasonable expectation.

What about 70%? Now the fund grows to almost $11,000 in a year. These are still exceptional returns and not something you should expect to find.

A 65% win rate gives you a fund of $2,714 after a year. That’s still a massive increase of 900%. Unlikely, but at least we are getting closer to the bounds of possibility.

What about 60%? That gives a profitable system with the fund growing to $669, an increase of 123% in a year.

Maybe the promise of a return such as that does not overly excite you, but are you currently profitable? Would it be an improvement on your current performance?

If you are not currently able to get 60% winners to earn a positive return, why would you expect to able to get 70 or 80% winners?

Stop Looking for the Unattainable

So look for a system with an expectation of somewhere in the range of 60% winners. If there are claims of 70% or above they are almost certainly false claims.

Importantly, ensure it is a system that you could work with and perhaps improve over time. Put a different way, is it a system that both helps you to learn and requires you to learn to trade?

If so, then it contains the possibility that you can move to profitability and work from there.

Now we are getting somewhere. You need a system that offers possible outcomes and that offers a base from which you can build.

If you have that and you are using it then you are developing the skills that are needed to be a profitable trader.

Don’t get sucked in by unrealistic promises. There is no instant easy money. There is no Holy Grail of trading, no system that guarantees success.

But there are winners and losers. Most traders lose. The winners learn to trade using a well proven strategy that guides them in their decision making.

Learn to trade profitably. Just as in the story, the search leads back within.


BOSSwidget

Click Here to Download this Post as a PDF

Comments

Are you Looking for the Holy Grail of Trading? — 2 Comments

  1. Hi Andrew

    Thanks for the comment and I certainly agree. Maybe the problem is a natural tendency to blame others for our failures but I think that there are so many that are promising the unattainable i.e. instant riches with little effort, that new traders are being sucked into having unrealistic expectations. So, they are really up against it if they are to be successful.

    Steven

  2. Hi Steven
    It’s so good to see someone writing sense in relation to Binary Options. There is so much nonsense out there that people seem to see them as an instant source of riches. And then when they inevitably fail to make 100% or 95% accurate predictions they condem them as fraudulent. They have their place in trading, but the problems are the same as with all other instruments. Traders have to learn about trading. Just as in the old driving joke where the most dangerous part of a car is the nut behind the wheel, the main reason most traders lose is the trader.