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Chapter 29, Part I. Trading Plan Framework – Common Thoughts. Page 6

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 27, 2013.

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  1. Sive Morten

    Sive Morten Special Consultant to the FPA

    Aug 28, 2009
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    Here we come to second point. Trading is a question of probability. It means that a profitable trading system is different from an unprofitable not because it is profitable in every trade, but on average. So, if you make, for instance 100 trades, strictly, as a system suggests and 50 trades will lead to profit, 50 will lead to loss, but after that your account will have a profit, then we can say that this system is acceptable (although not perfect of course).

    Pipruit: Why?

    Commander in Pips: Because if you will strictly follow it, then you will end your journey with profit. With many trades it leads to profit, despite the fact that number of profitable trades being equal to loss trades. The point is that profit in each winning trade is greater than the loss in each loosing trade.

    But here is major word “Strictly follow.” Now imagine that you start to make “occasional” trades by gut-feeling, toss the coin to decide buy or sell or something like that. By that action you break the average positive statistic of the system. It promises you profit, if you strictly follow it, but when you start occasionally change and break it – you will end with loss. Even more, you will never understand how good system is. To check it, you have to strictly apply it and see what will happen. If you do not do this, how will you understand if it does work or not?

    This is the same as with Tiger Woods. His system suggests that he should use a golf-club to hit the ball. In this case it will be a bunker the ball in most cases, say 85 times in 100 hits. But if you change system and replace his golf-club with a hockey stick or even with snooker cue, even Tiger Woods will fail most of the time. Even more, you will start to think that Tiger Woods is a bad player, but the reason for this failure is your breaking of the system by occasional replacing a golf-club by mother’s rolling pin or grandma’s ladle.

    Pipruit: All right, I think, I’ve got it.​

    Commander in Pips: So even if you have 85/15 profitable system, that could lead you to significant profits, you will break the probability foundation by stepping out from the trading plan. As we’ve said, if you will find that a system is unacceptable, then there are a lot of others and you can test them easily, but without discipline there is nothing you can do. It’s better to give your money to somebody else right now.

    P.S. This lesson was written by Sive Morten, who has been working for a large European Bank since April of 2000, and is currently a supervisor of the bank's risk assessment department. Sive's knowledge of forex market and banking industry is vast and quite complete. If you have any specific questions about forex, banking industry, or any other financial instruments, please post them on the next page and Sive should answer soon.

    Note: FPA ranks are earned in the battles against scam, not in the classroom.
    Rogelfx likes this.
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