Walter Joseph Dillard / Profilo

Risk to reward ratios are a worthless tool if you don’t know the win rate as well.

I deal with people all the time who think that a very good risk to reward ratio is needed on every single trade. Often people think a RRR of 1:3 or more is needed on every single trade.

The problem is that people take risk and reward ratios alone in a vacuum without considering the win rate.

After all, if you win only 5% of the time, then a system with an RRR of 1:3 is a massively losing system.

Meanwhile if you have a system with a 35:1 RRR but a win rate of 97.3% then that’s a winning system. (This is the exact case with roulette. If you think an RRR of 35:1 can’t work, then you’re essentially saying that the billions of dollar casinos have earned off roulette going back 300 years is merely luck and soon the casinos will lose all their money to gamblers. Do you really believe that? If so please say so in the comments!)

Again, it’s just two components.

-1: The risk to reward ratio.
-2: The win rate.

Examples.

-1:
-1:50 RRR.
-0.00000001% win rate.
-System = bad.

-2:
-5:1 RRR.
- 90% win rate.
-System = good.

As you can see, a risk to reward ratio alone tells you nothing. The win rate and the risk to reward ratio always need to be used in conjunction. You really can’t use one to evaluate any trading system without the other.

Thanks for reading!
Have a great day!
Cheers!
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Many people say that trading is too risky. I see what they do as too risky.

I grew up going to schools that promoted safe and secure jobs. Safe and secure jobs are what most of my classmates went on to get after going to college.

Now, many people see that I trade and say that trading is too risky.

Not only do I disagree, as trading is not risky, but I in fact see many of their jobs and no financial planning as too risky.

I have nothing against good jobs of course, but the financial planning of some of my former classmates seems risky to me. Many people blow nearly their entire income on bad expenses and liabilities. They buy bigger houses and get nicer cars, but financially aren’t building a solid asset column of real wealth and are buying what wealth looks like while acquiring more and more debts.

Personally, I find living on the edge of the financial abyss to be too risky.

So, I trade and build wealth effectively with my trading that I roll over into other forms of investments that deliver positive cash flow in both passive and portfolio income.

I don’t consider that to be risky when you do it legally, correctly, and with expert advice and solid personal experience.

I have friends that work jobs and do this as well, and indeed solid financial planning and building an asset column is not risky. Having a job can be a wonderful thing and I have no disrespect for anyone who has a job and earns a nice income from their job.

Still, most people don’t love their jobs but are stuck in them working longer and harder just to make the next debt payment.

There’s also an even greater risk to people trading their time for money if they don’t love their job. They risk putting all of their life and all of their time into a job that makes them miserable and doesn’t create time for them to do what they love.

To me that is too risky.

Thanks for reading!
Have a great day!
Cheers!
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Ambition is a wonderful thing. It’s great to have the drive to be great and accomplish great things.

However, novice traders often fail because their goals are too ambitious for what is actually possible.

The novice trader usually starts with $100 and has a goal to earn 10% per day.

They do a quick calculation and see that if they earn 10% per day for 90 days then they’ll have $531,302.00

They see a simple way to get rich, so they go for it.

However, none of them ever accomplish this goal. Sure, they make 10% or more some days, even some weeks, but then give it all back the next week.

A few months back I had a conversation with a novice stock trader who made 45% at the start of the month then lost all his gains by the end of the month. I offered to help him work on his consistency, but he rudely refused and acted as though his trading was far superior to mine.

He was sure that he would be able to separate the wins from the losses and soon earn 45% plus per month. I pity these poor fools, but there’s no helping them as long as they are so sure that they will make it rich quick.

After losing a few times, the novice trader seeks out knowledge and trading services in order to reach their goals. From prop firms to crypto mining websites they look for fast ways to make a lot of money and fall for scam after scam.

If they go for knowledge instead of services then often they learn, but are looking to learn methods that fully explain what will happen in the market well enough to earn 10% per day. Once again, they fail.

Ultimately the best solution is to drop the 10% per day notion and commit to 10% per month or 10% per year instead. Sure, it’s not the overnight fortune that everyone wants, but it actually works. Then you can always scale up with other people’s money and make a fortune in not too much time that way.

10% per day just isn’t a reality.

Thanks for reading!

Have a great day!

Cheers!

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The trades you don’t take are as important as the trades you do take.

Most novice traders don’t know this, and greatly suffer from overtrading thanks to the fear of missing out. (FOMO).

They want so badly not to miss out on trades that they end up jumping into trades that they shouldn’t be getting into.

Most successful traders tend to take 1-3 trades per day, yet the average novice trader takes about 20-30 trades per day.

Ultimately success isn’t found just on the trades you take but on avoiding trades you shouldn’t take.

If you have a good edge that gives you a great advantage in the market it isn’t likely to show up all the time.

Novice traders approach trading like it is hitting a money button, so ultimately overtrade. Meanwhile the truly successful traders have their edge and simply wait for the opportunity to use it properly.

There will always be temptation to overtrade, but only the traders that stick to their edges and keep their emotions in check truly succeed in the long run.

Thanks for reading!

Have a great day!

Cheers!

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Most traders don’t want to learn, they just want to earn.

That’s a simple fact and it makes sense, but it’s extremely bad for these traders.

There are many reasons that people go into trading. The usual reason is because they want to make a lot lot of money from trading.

And that’s a good reason to trade. After all, earning a lot lot of money is a great thing.

However, many traders go in with the wrong attitude: Too much ego, no humility.

Many novice traders think they are going to conquer the financial world in a matter of months, and they act like that too. They don’t want advice, they don’t want to understand trading psychology or set proper plans in place, they just want to get rich and do it quickly.

They look down on consistent returns and act as though they will soon be earning 100% per day and anyone who earns less than that is a fool.

I pity those poor fools, but there’s not much that I can do to help. After all, they are so braggy and sure of themselves that there is no helping them until the market takes all their money, crushes their spirit and credit rating, and hobbles them into humility.

Maybe the egotistical novice trader state is a necessary part of the process. I personally couldn’t say. Regardless, when it comes to actual success and not just theoretical success it’s important to learn from experts and not just to think you know better in all situations.

I think we can all agree on that.

Cheers!

Have a great day!

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3 quick trading tips part 2!

-1: Have a clear trading plan.
-2: Reinvest and compound your profits.
-3: Be the best at what you do.

-1: If you get on a plane you have a clear destination. Would you get on a plane and say, “Fly me anywhere?” I doubt it. Yet most people don’t have a clear trading plan and are doing just that.

I personally recommend 3 trading plans. 1 for security, 1 for comfort, and 1 for getting rich.

It’s important to have all 3 trading plans and not just the last 1.

-2: Compound interest is extremely powerful. If you reinvest your profits then you can really grow your capital. Many people instead withdraw their profits. While there is a time to do that, it’s important to grow your capital. If you truly have an edge in the market then it’s foolish to not compound your profits.

-3: To make the big bucks you really need to be the best at what you do. 90% of traders are losers or boom and busters. 10% are consistent winners, but only 1% are the big winners.

If you want to really succeed you need to be in the top 1% of all traders, which isn’t too hard to do, but is a necessity.

Thanks for reading!

Have a great day!

Cheers!

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Many people believe their intuition and insights will allow them to outsmart and outperform the market.

However, intuition statistically isn’t as good as a purely mechanical strategy.

80% of professional fund managers picking specific stocks are outperformed by the S&P 500. That’s simply a fact.

That’s not to say you can’t pick good stocks, but just means that most people think they can pick really high performing stocks yet in reality would be better off just buying the S&P 500 purely mechanically.

Many think that intuition holds some magic, some super powered insight that allows them to see the truth. In reality, intuition just statistically isn’t worth putting too much stock in.

Don’t get me wrong, it’s important to listen to what your intuition has to say and to look into it. Sometimes you’ll get a great idea and it’s most definitely looking into. However, too many people go straight from having a thought to acting on it without looking into it and verifying it first.

At the end of the day, intuition can be very valuable, but it has its limitations and overall isn’t as good as purely mechanical strategies tend to be based on the statistics.

If you don’t believe me, please read the book, “What Works on Wall Street.” It goes into far more detail on this exact matter.

Thanks for reading!

Have a great day!

Cheers!

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The goal of trading is always profit. If it’s not then something is very wrong.

Still, while the goal is profit, surviving is a necessity first.

Trading is a minus sum game. This means it is even harsher than a zero sum game. In a zero sum game for every winner there is a loser. Take a poker game for example. Every time you win money another person loses that money. Simple, right?

However, in trading it’s a minus sum game. What you get when you win is less than what the loser loses. This is thanks to brokers on both sides taking a cut regardless of if you win or lose.

If you win some and lose some in a zero sum game then things balance out. However, if you win half the time and lose half the time then you bleed out in a minus sum game. This makes trading very hard to succeed in, and forces you to have a real edge that wins enough of the time to cover both losses and all the commissions and spreads charged by your brokers.

This means that first you need to survive before you can succeed. After all, 90% of retail traders lose 90% of their money within 90 days. The first obstacle is always to overcome the 90 90 90 rule. Not falling into this trap puts you in the top 10% of retail traders.

Once you can survive, then success is just a few steps further. However, many people go right for success and end up failing instead.

This is where risk management and risk diversification help. If you start with low risk accounts that aren’t going to make you rich but are consistent and risk very small amounts per trade, then you can survive in the markets and learn a lot based on very small financial losses.

Once you can get low and medium risk investments in place then feel free to go for some of those higher risk trading accounts. After all, once you have some security in place then going for what you want is easy. After all, you can always fall back on the lower risk accounts if you fail on the higher risk opportunities.

At the end of the day surviving needs to come first before massive profitability.

Thanks for reading!

Cheers!

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For the average trader, trading is an emotional rollercoaster.

They start off feeling limitless and looking forward to massive amounts of money from the market. Often they picture the house they’ll buy, the car they’ll have, how great their life will be.

Up front there are a lot of emotional highs when it comes to thinking about trading.

When they start trading or seeing results on a system then those high emotions that rushed them into trading disappear and they plummet into fear and worry.

As soon as trades start going against them they have nothing to back up their former confidence. At first they felt like there was only fortune and no risk. Now, they feel only fear and worry, only seeing the risk and not the reward.

Many average traders continue this cycle until they quit trading. Regardless of the system they use and how good it is, they can never detach from this emotional rollercoaster.

At the end of the day trading is simple and simple to intellectually understand, but the emotions are what hold average traders back from being exceptional.

If you’re interested in improving your emotional trading feel free to private message me and I’m happy to help you out with top notch exercises that help fix this issue.

Thanks for reading!

Have a wonderful day!

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Most retail traders want the holy grail of trading. They want huge profits without any losses.

They want to risk nothing yet be rewarded with everything.

So, they search for the holy grail of trading. At first they wing it, but later they just look and look for it from technical indicators to price action to algorithms. Yet, they never find the holy grail.

The reason is because there is no holy grail of trading.

It only takes one person in the world to make you lose a trade. One politician giving an unexpected announcement, one hacker taking down a whole company, one hedge fund manager deciding to short squeeze millions of retail traders out of their positions…

It only takes one person to make you lose a trade. Thus there is no way to trade with zero risk and make a fortune overnight. The holy grail of trading simply isn’t real.

Instead you can become a highly profitable trader, but all trading involves both risk and reward. You cannot have one without the other. Having a great strategy is doable, but perfection and the holy grail of trading are simply myths.

Thanks for reading!

Have a great day!

Cheers!

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A lot of people think that because they are smart they can outsmart the market.

They think they can pick the right direction in the market, not use a stop loss, not test their methods, and that because they are smart they will make a lot of money.

I see this all the time from forex to penny stocks. Many people are so sure they can use their intelligence to outsmart the market and that they don’t need a method and rules to tie down their trading and investing.

Whenever someone pitches to me that their method is to outsmart the market, I always think of Isaac Newton.

Isaac Newton was a brilliant scientist. He was a pioneer of calculus, discovered the connection between gravity on earth and the motion of the planets in space, founded 3 key laws of motion, as well as some of his lesser known discoveries such as Newton’s law of cooling.

When it comes to top influential scientists, Newton is certainly high up there. Yet, Isaac Newton lost nearly all of his family’s fortune by investing in the south side sea bubble near its peak. When it came crashing down he lost nearly everything.

He thus said, “I can calculate the motions of heavenly bodies but not the madness of men.”

Newton was a very smart man, but because he was smart that didn’t make him a great trader.

Often an extremely simple and mechanical plan in any market beats those trying to outsmart the market. That’s not to say one can’t have great methods, you definitely can make a ton of money in the markets and I do encourage you to do so.

Still, for those who aren’t willing to spend the time to learn about trading and just are acting on hot tips or trying to outsmart the market without testing their method, nearly all will end up losing a fortune just as Newton did.

Thanks for reading, have a great day!

Cheers!

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Many people go into trading because they see it as glamorous and exciting.

They think traders make millions on a single trade, and live a prosperous life based on complicated strategies, creative ideas, bold steps, and then massive profits all at one time.

Many people think trading is like being in an action movie, all excitement all the time.

To many people that is exactly what they want, an exciting way to make a lot of money.

The truth of good trading is that it is not exciting. If you do it right, it’s not supposed to be exciting.

If you are emotionally involved in trading then you not only benefit from emotional highs, but suffer emotional lows when things don’t go your way. Truly great traders do not get emotionally hung up on their trades, but merely use them to turn a consistent profit.

Many people stray far away from great strategies because they are looking to make money on something that is exciting. For example, some of the strategies that I use to manage massive amounts of investor and hedge fund capital are the strategies that retail traders with $100 are unwilling to invest in because the strategies aren’t exciting enough for them.

So they proceed to go and lose that $100 instead of investing in strategies that professionals put over 1000X that into.

If you want to be excited, the markets are far too expensive a place for you to get your fix. The markets are a place for making money, not getting emotional thrills.

Make money in the markets and use that money to help fuel the fun you have in your exciting life.

Cheers!

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In our lives today, many people think they are free, but really are not.

While there are no longer physical chains and shackles there are still financial chains and shackles.

Most people have liabilities, bills, and debts that force them to keep working and keep working harder and harder. Financial chains weigh on people just as much as physical chains do.

Finances are more important than ever, particularly these days.

Automation has begun to remove jobs from the market and that will only continue as time goes on. Cars used to be made by an assembly line of people and now are made by an assembly line of machines.

Truck driving in many places has begun to be automated away with self driving trucks taking over. Fast food restaurants have started having more and more machines take over, and some are now entirely automated.

Farming equipment has moved in the direction of being self-run as well with factory farms heading towards the use of fully automated equipment with no need for people to operate it.

Even in the trading world many traditional hedge funds have begun to be transitioned into quant funds with trading algorithms replacing people.

None of these automation situations are bad, they are simply a change in the world as machines can operate far faster and far longer than human labor for far less money.

For now many people can always just get retrained and get another job in another sector, but that’s not going to be the case forever. To me this means it’s the most important time to become financially free and not have to rely on a job for income.

Trading and investing aren’t the only vehicles to reach financial freedom, but to me they are some of the best if you’re willing to do the work.

Let’s be honest, most traders won’t be willing to do the work and won’t make it. Most of them will fail and quit within 5 years or less. Still, to those who see the value of financial freedom and are ready to learn, trading can be a fantastic way forward.

Thanks for reading!

Have a great day!

Cheers!

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It’s funny how few see market crashes and drops as ultra awesome chances to buy great things on sale. From the housing market to the stock market, when things crash you have the opportunity to buy all the things you want at a massive discount.

However, many people buy high and sell low in the market because of their fear and greed and need to follow the crowd.

If you do what the crowd does then you’ll get the same results that the crowd gets.

Often it takes novice traders a lot of courage and energy to get into a market. Unless they are sure it is trending strongly up, they won’t get in. As soon as it hits all time highs they leap in and are ready for the market to keep shooting up indefinitely. Somehow that just never happens…

Meanwhile when the market is low they keep panicking and selling off what they have at loss after loss instead of simply waiting out the crash and for things to recover. This is often because they trade with money that they can’t afford to lose, so have no real ability to stay in the market through any negative fluctuations.

Personally I recommend buying into the market whenever it goes low and putting your money into great things like the S&P 500 index. Whenever the market dips it never hurts to pick up some S&P 500 and sell it when the market hits all time highs once again.

After all, buying low and selling high is not rocket science. The issue is that many people want to time the market and get in at just the lowest possible price and then leverage up big time so that a small event can make them a fortune.

For example, with the S&P 500 they don’t want to just buy $500 of it, they want to trade it with options and enter at just the lowest price with $5,000 they don’t have and earn $50,000 off a perfect move with a very tight overleveraged position.

This usually results in them simply losing their $5,000 that they can’t afford to lose. Instead, they’d be better off just trading the S&P 500 and not bothering with options until they have more experience. Simply buying good things low and selling them at their highs is a great way to earn some extra and consistent money over time.

After all, get rich quick schemes are usually just a way for people without money to lose what little they have and get poor quick.

Thanks for reading!

Have a wonderful day!

Best wishes to you!

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Martingaling is often thought to be the worst trading technique of all time.

However, this is often because of the emotions people have about it and not always statistical fact. So today I want to go through the positives and negatives of martingaling and where it can work and why for most it never works.

Let’s start off with the martingale theory.

Let’s say we’re going to play a game where we bet on the outcome of a coin flip. Examining the coin, we make sure that it truly is a fair coin with a 50/50 chance of heads or tails.

Over a large enough series of coin flips, we thus know that the coin will be heads 50% of the time, and tails 50% of the time.

So, we place our first bet of $1 on the coin flip and call heads. The coin comes up tails and we lose $1.

The odds on the next coin flip coming up tails based on the single coin flip are 50/50, but in the series, the chance of the next flip also being tails is now 25% with a 75% chance of it being heads.

So, we double our $1 bet and bet on heads. With $2 here we will not only win back our $1 lost, but will also earn $1 profit.

If the coin comes up tails again, then we bet $4 with the odds now being 87.5% that we’re right. And if we still lose, then $8 on the next flip where we have a 93.75% chance of being correct. And so on and so forth.

The martingale theory is rather straightforward and statistically makes sense. However, for it to always work you would need an infinite amount of time and money.

The main problem with martingaling is that it cannot work forever. Eventually a very rare event can occur and can wipe out the finite amount of money that you have.

Thus, martingale is not going to work forever, but that doesn’t mean that it cannot be used effectively. What you can do is first off test the strategy against all past market events.

A majority of martingale systems fail because people don’t backtest them. Over 99% of all martingale systems will fail on backtests some time in the last 15 years. It’s always important to backtest at least the past 15 years before implementing any strategy.

If a strategy works for the past 15 years with a martingale method, then you can always then limit the loss in case a very rare event were to occur.

For example, I have a martingale method that I like that makes a consistent profit of 200% per year. I limit it with a 55% stop loss, which was never hit in any year on backtests or any forward test either. Then if an event that never occurred before occurs at any point, at least 45% of the account would be protected.

With such a system it’s easy to triple your money in a single year, take out your original investment and keep growing money with it while protecting against the worst case scenario.

Thus, I have to say that martingaling is not a great idea compared to a fixed SL and risk management, but it’s not like it’s fatally flawed either.

The 2 most important things are that you:

-1: Backtests it at least for the past 15 years.
-2: Employ an equity stop loss to protect against never before seen events.

Thanks for reading!

Cheers!

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Many people go into trading looking for a way to pay their bills.

These people usually have a large number of monthly bills and liabilities and are looking to quickly come up with more income to cover these expenses.

Usually their bills aren’t outrageously high, but they want to come up with an easy extra income just to pay the bills.

One of the questions I get the most is, “How much money do I need to trade with to earn $2,000 per month?”

My usual answer is, “$20,000 to $40,000 is usually what you’d need to start with to consistently make $2,000 per month.”

That’s not an answer people like.

Many want to invest $500 and next month have $2,000 of extra income coming in every month from there on out. That’s simply not how trading and investing works.

If you are an expert investor and have lots of connections and great deal making skills, then you can use the power of OPM (Other People’s Money) to quickly make a lot without having to invest a ton yourself. But, if you know how to do that, then you’re likely already doing that and earning well off it. A majority of new traders just want to use their own capital and don’t know anything about how to utilize other people’s capital in a venture.

So, many try to increase their income quickly by investing $500 and quickly trying to trade that up to being worth $2,000 per month. None of them succeed and quickly they are down $500 and looking for a way to get $2,000 per month by any means necessary.

This simply isn’t the right approach. Trading is not a way to pay your bills and cover your liabilities next month. Trading is a way to reach financial freedom through compound interest.

If you earn 10% per month for 10 years then you will be financially free in less than 10 years.

Year 0: $500.00
Year 1: $1,569.00
Year 2: $4,924.00
Year 3: $15,456.00
Year 4: $48,508.00
Year 5: $152,240.00
Year 6: $477,796.00
Year 7: $1,499,531.00
Year 8: $4,706,171.00

If you just want to pay your bills then trading and investing aren’t going to do that for you anytime soon. If you want financial freedom, then trading and investing will get you there easily.

There’s certainly no need even to make 10% per month. 5% per month can have you there in just a few more years.

So instead of trying to make 400% per month and failing every month, it’s best to focus on the long term and make a consistent monthly profit that compounds your way to financial freedom.

Thanks for reading!

Have a great day!

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