Truth About FX

EP139: Is it Possible to Find a Trading Holy Grail?


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In this episode of Truth About FX, Walter digs into every trader’s biggest barrier, looking for perfect results. Walter talks about risk parameters and how testing your system in forex tester can really show some difference in terms of drawdowns.
He also answers:

* Is it really okay to have more than one system?
* What should you really expect out of a system?
* Is there really a “perfect system?”

Walter answers this and more in this episode of Truth About FX.
Download (Duration: 04:53 / 5.59 MB)
In This Episode:

00:32 – stellar results

01:29 – moral of the story

02:36 – scrap it

03:16 – hallmarks of a good trader

05:09 – goes and explodes

06:25 – giant box
Tweetables:

Do your numbers [Click To Tweet].

You can have multiple systems  [Click To Tweet].

Everybody has a drawdown [Click To Tweet].

Hugh: Hi, Walter. Somebody wrote in and they said they have trouble sticking to and believing in a system.
They say:
“I tend to drop a system as soon as they start showing less than stellar results and start looking for the next Holy Grail trading system.”
What should they do?
Walter: Yeah. That’s a tough one, isn’t it? Obviously, I’ve been there. I don’t know if you’ve been there, Hugh, but I’ve certainly been. It’s pretty common thing for traders.
Hugh: Oh, yeah. Totally.
Walter: There’s a couple of things I think that can help, with respect to Holy Grail thinking.
The reason I say that because it’s unclear what the issue is with this trader. It could be the risk parameters. Once you find the system and you run through it in Forex Tester and you get your numbers — numbers, meaning your average winner, average loser, and the win rate — you can work out what kind of a drawdown you’re likely to have.
It could be that because this trader is risking so much that he or she is up against these major drawdowns that are inevitable because of the math behind the system and yet they’re so discouraging that the trader just says “Ah, I quit. Let me find something better. This stinks.” It could be that.
The moral of the story there is do your numbers, do your back testing, get your average win rate or your average winner size, your average loser size and then your win rate. Plug that into fxjake.com/risk/ and then the risk calculator and then say, “Look, I don’t want to have an X drawdown.”
Let’s say you say, “I don’t want to have a 20% drawdown.” You plug your numbers in and you can find out how much you should risk so that you avoid that 20% drawdown. As long as your average winner and your average loser size stays the same — which is basically another way of saying your reward to risk ratio. As long as that stays the same and your win rate stays the same or close to what you were looking at with your backtesting, then it will be highly unlikely that you’d hit that drawdown level.
That’s one thing to do but beyond that… One...
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Truth About FXBy Walter Peters (FXJake) and Hugh Kimura (Trading Heroes)