How to Tell if Someone is Lying About Their Trading

Boris Schlossberg

I listen to scores of trading podcasts every week and here is one quick way to tell if someone is lying about their trading.

“I trade with 1:1 risk-reward ratio and I win on 80% of my trades”

100% bullshit.

Let’s first define what we mean by trading. Trading is the act of frequently buying or selling financial instruments in capital markets for the purpose of speculative gain. Let’s for the sake of argument say that a trader makes 2 trades per day. (The average is somewhere between 10-20 per day, but let’s indulge this claim made on podcasts all the time)

Ok, so I have a 10,000 account. We’ll trade at 10:1 lever for 15 pips target 15 pips stop twice per day. (This is actually the example I heard the other day on a podcast, so I am even making this up).

There are 250 trading days in a year.
I make 500 trades.
At 80% win rate I make 45,000 by year one.
Rinse and repeat.
By year two I now have $280,000 in my account.
By year three my account has swollen to $1,120,000.

In three years I have increased my account by 10X. Give me a decade and I will own the world.

Now let me explain why such claims are total bullshit.

Every trading strategy has something called the winning edge. It’s easy to calculate. The winning edge is basically the percentage difference between your win rate and your break-even point.

For example, if you traded with a 1:2 risk-reward ratio (risking 2 to make 1) your breakeven would be about 67%. If you won 70% of your trades your winning edge would be 3%.

Some points of reference. In blackjack casino edge is about 2%. In roulette, the edge is somewhere between 2-4%. Renaissance Technologies, the world’s most famous and longest-running quant fund has a winning edge of about 2% on the millions of trades it takes. Virtu and Citadel – the biggest HFT market makers in the world – are similar.

So, when someone on a podcast tells you they win 80% of their 1:1 risk trades that means they are claiming a 30% winning edge. (80% – 50% breakeven rate).

They. Are. F-ing. Lying.

The reason why I get so upset about this is that it does a terrible disservice to many new traders who are trying to succeed at this game. It’s a Bernie Madoff type of hustle precisely because it seems so reasonable and attainable. Remember, Madoff ran his Ponzi scheme by being modest. He didn’t claim multi-hundred percent returns. He simply claimed a steady 1% gain every single month. His hustle was so toxic because it was so believable. Same with every BS artist on the web who claims they “rarely lose on their trades”.

Real trading is about losing all the time, every day. It’s about clawing out a 3% edge and trying to keep it for as long as you can.

Just for fun, I decided to take a look at the winning edge of someone who trades for real – my partner Kathy. K has been on a blazing hot streak for the past six months putting up positive results 3 out of every 4 weeks while banking 1800+ pips in the process. Kathy basically trades with a 2.5:1 risk-reward ratio (these figures are rough estimates because she often cuts losers quickly but I was being specifically harsh in my estimates) for a 72% breakeven rate. Her win rate, however, is about 77% so she has been able to maintain a 5% winning edge for the better part of 2019. That may not sound glamorous but that was enough to produce one of the best streaks in FX over the past six months.

So don’t be fooled. Trading is a game of inches. Its rewards build over time but they are rich in experience and knowledge. So anchor your expectations properly, please.

Also, the next time you see a trader on Youtube and he is driving a Tesla – then for SURE he is lying.

Weekly Forex Trading Calendar for February 3, 2020

Weekly Calendar Calls

We have just posted our weekly news trading calendar for the week of Feb 3, 2020. You can download the pdf and excel file by clicking on the Read More Link. These are soft biases on economic data and not trades that we directly trade or track like BK Swing and News.

PDF version of CALENDAR020320

Excel version of CALENDAR020320

Weekly Forex Trading Calendar for January 20, 2020

Weekly Calendar Calls

We have just posted our weekly news trading calendar for the week of Jan 20, 2020. You can download the pdf and excel file by clicking on the Read More Link. These are soft biases on economic data and not trades that we directly trade or track like BK Swing and News.

Excel version of calendar011920

PDF version of calendar011920

Weekly Forex Trading Calendar for Week of January 12, 2020

Weekly Calendar Calls

We have just posted our weekly news trading calendar for the week of Jan 12, 2020. You can download the pdf and excel file by clicking on the Read More Link. These are soft biases on economic data and not trades that we directly trade or track like BK Swing and News.

Excel version of calendar011220

PDF version of calendar011220

The Most Important Thing in Trading

Boris Schlossberg

What the most important trading lesson I learned in 2019?

It wasn’t a new set up.
It wasn’t a new algo.
It wasn’t a new indicator.

All three came in handy – but the lesson that really helped me trade better in 2019?

The need to forgive yourself.

There are no good or bad trades. There are only wrong or right trades. If the trade is wrong it must be stopped. But our inability to admit that we are wrong results in runaway losers that destroy our accounts.

It’s a tale as old as time and repeats itself over and over again because we are unable to forgive ourselves for being wrong so we make things much worse by trying to force the market to be right.

Trying to turn a bad trade into a good one is no way to live

But the power of forgiveness is extraordinary. Not only does it clear our mind and salve our conscience, but when done right it actually helps to improve our discipline. Because to forgive is not to forget. And once you’ve given yourself permission to forgive you are much more likely to accept your mistake, learn from it and not repeat it again.

In the end, it’s kind of ironic that in order to achieve discipline and excellence you actually have to accept and forgive your ineptitude and absence of control.

Happy Holidays to all

B

Weekly Forex Trading Calendar for December 23, 2019

Weekly Calendar Calls

We have just posted our weekly news trading calendar for the week of Dec 23, 2019. You can download the pdf and excel file by clicking on the Read More Link. These are soft biases on economic data and not trades that we directly trade or track like BK Swing and News.

PDF version of calendar122219

Excel version of calendar122219