[VIDEO] How Do You Make Money Trading?
By Ivo Luhse
Watch the 6-minute video below to learn the 'secret' mathematical formula that makes BIG money for Professional traders (and Casinos) while all the novice traders just chase the winners and end up being broke.
- Hey, traders!
In this video, I will show you one simple mathematical formula that explains why most traders never make any money. At the same time, I will show you how you can use the same formula to make all the money from the markets that you want.
Yes, it's a pretty bold statement, but using this exact formula, the gambling industry makes $500 billion a year.
So, how do they do it?
Well, they do it by using a very simple but beautiful formula to calculate their edge, their mathematical advantage over the players. Every single casino knows this and uses this formula; every single betting shop knows this and uses this formula; every single quant trader uses this formula to build their trading strategies; and every single professional trader uses it even if they're not fully aware of it.
Before I show you the formula, let's have a look at two strategies. Strategy A has a 90% win rate, so you're nearly always correct, but when you're correct, you only win a little. However, when you're wrong, you lose a lot. Strategy B, on the other hand, only has a 30% win rate, so you are very rarely correct – but when you are, you win big! When you're not, you only lose a little. Now, which strategy do you think novice traders would use?
The most searched term in Google search for strategies are “Martingale”, ”No Loss strategy” and “High Win Rate” strategies. The reason why every single novice trader is using and searching for these types of strategies is because of our natural human need to be correct. Novice traders just can't comprehend the idea that you would take a trade that has a high probability of being a losing trade and only a small probability of being a winning trade.
So, they all flock to Strategy A– those types of strategies that require high win rate.
Let's look a bit deeper into these strategies and do a few simulations, using our strategy expectancy simulator. Because Strategy A is still a profitable strategy, – it has an edge– over time it should make profits for the trader. Why is it still that traders can't make money trading these types of strategies? The reason for this is that in order for the strategy to be profitable, everything needs to be perfect. There's zero room for errors; you cannot make mistakes, you cannot miss trades, you cannot get slippage or get spiked out on a news announcement. One mistake, one hiccup for these types of strategies, you miss the 9th winner, and you're only getting 8 winners, which totally destroys the strategy and makes it unprofitable. Everything needs to be perfect for this strategy to work. And we all know that nothing is perfect and everyone makes mistakes. From the moment you start using a strategy that requires a high win rate, you are doomed to fail.
Now, let's look at our Strategy B, that novice traders would never even consider because it only has a 30% win rate. On 7 out of 10 trades you take, you will lose money. But the winners are large enough to cover all these losses and still have a profit left over. It's a great strategy with a high positive expectancy and a good edge over other market participants.
But okay, let's say you're still making mistakes with this strategy. You can't even get those 3 winners out of 10. You know, when you're just starting out trading, everything in trading looks really complicated. I get that. And you just can't get those 3 winners out of 10. You're only managing to get 2 winners out of 10, what happens then?
Well, the beautiful thing is that thanks to the mathematics, you’re still a profitable trader and you are making money. Not as much money as with 3 wins out of 10, but you're still a profitable trader. And now you have a foundation with a great strategy and mathematics on your side to make all the money you ever wanted. The beautiful thing with this type of strategy is that as you gain more experience, as you get better at trading, not only can you get 3 winners out of 10, but you could even get 4 winners – suddenly you're in the big league! You are making BIG money!
This is how professional traders, using mathematics, make big money while all the retail traders are just chasing the winners. This is a beautiful and simple formula with positive expectancy that makes billions for the gambling industry and even more billions for the trading industry. Write down this formula and use it every time you trade. The formula states that if your winners are much larger than your losers, almost regardless of what your win rate, you will always come out on top.
If you would like to run these types of simulations for your own strategies, you can download our strategy expectancy simulator below. It's totally free.
Use it and trade well with high expectancy strategies!
Will your trading strategy make money long-term? Are you trading a strategy that is doomed to fail? Using our Strategy Expectancy Simulator you can discover strategy profitability before its too late.