What's the best trading indicator out there?
I get a lot of comments and emails like these, and to find the best one I have even tested
many different trading strategies 100 times on the Trading Rush channel. But still, what's
the best indicator out there? In almost all the testing videos I have made, especially
the ones that were removed because of YouTube, I repeatedly said that money management is
the key to a successful trading, and without it you might very well be a sitting duck
that is waiting to be hunted by the market.
Money management is one of the most important
concepts you should understand as a beginner trader, but instead of explaining how proper money
management can change your trading results for good, I took 10 trades by flipping a coin.
That's right ladies and gentlemen, I tossed a coin and took 10 trades to show you the
importance of money management in trading, so what do you think happened? If you are watching
the Trading Rush Channel for the first time, we tested many trading strategies 100 times
to find their win rates, so subscribe to the Trading Rush Channel and ring that notification
bell, because you don't want to risk your money on a strategy that doesn't even work. In this experiment, when the coin landed on
heads, I took a long position. And when the coin landed on the tails, I took a short position,
simple as that. Some of the wonderful Patrons at Patreon also participated in this experiment,
so 7 out of 10 coins were tossed by Patrons and here are the results. The first coin landed
on heads which means buy, so let's take a long position on the Euro USD pair. Let's
set the stop loss at a good enough distance from the entry, and let's set the profit
target size 2 times more than the stop loss.
For example, if the stop loss is 10 pips,
the profit target will be of 20 pips. As you can see, we are using a 2 is to 1 Reward to
Risk ratio. In simple words, if we win, we will make 2 times more profit than our potential
loss on the trade.
You see, trading is a simple game as long as you see it as any other business. For example,
let's say there is bill the business man. He runs an apple store where apples degrade
in quality as time passes.
Bill the business man magically gets $119 worth of fresh apple
stock in the morning for free. But here's the twist, if he can't sell all the apples
before midnight, he will have to pay for the remaining apples from his own pocket. Since
the apple will become pretty much worthless at midnight, his goal is to sell all the apples
before midnight. Obviously, not everyone is going to buy all of his magical apples every
day, some of them will become worthless at midnight. So why would Bill the businessman
risk his money in such a risky business? well well well, bill the businessman is a smart
businessman. He has somehow observed that there is a high chance that people will buy
40 percent of his magical apples before midnight. So if he sells the apple for twice the price,
bill the businessman will make some profit. If 100 apples are worth $119, 1 apple is
worth $1.19 for bill the business man. But if he sells 40 apples out of those 100 before
midnight for $2.38 each, in other words for twice the price, Bill the business man will make
a guaranteed profit before midnight.
Because if he only sells 40 apples out of 100, 60
apples become worthless at midnight. 60 apples are worth $71.4, which means bill the businessman
made a loss of around 71 dollars. But since he sold 40 apples for twice the price, Bill
the businessman made a total profit, because 40 apples worth $2.38, equals $95.2, and if
we minus the $71.4 bill the businessman lost from not selling the 60 apples, total profit
will be $23.8. So if Bill the business man continues to book double profits everyday,
he will always make money in this business even when his win rate is only 40 percent. This is the kind of mentality you need as
a trader which many beginners lack at the beginning. The first trade I took on the
Euro USD pair was lost. The price went straight through the stop loss. The next trade on the
GBP USD pair was also lost. Price hit the stop loss in literally the next candle. GBP
JPY also followed a similar pattern. So far we are down 3 trades and that's not a good
start. But in the next trade which was on USD CAD, price did go in the entry direction
and hit the profit target.
Since the profit target was set 2 times the distance of the
stop loss, we made a 2 times more profit. Now, we are only down 1 trade in total. Luckily,
the next trade on the USD CHF pair also made a profit. Now we are no longer in a loss and
are up by 1 trade in total. But then the trade on EUR AUD was lost, but since we risked half
the amount than the potential profit, the total profit was back to breakeven.
the trade on EUR CAD was lost, so we are back in total loss. But then the trade on AUD CAD
made a profit, and because of the double profit, instead of breaking even, we are back in the
profit. But then the GBP CAD trade was a loser, and the total profit was 0. But then, the
10th and last trade that was taken on CAD JPY, made a profit, so in the end, we are
up in profit without even using a proper trading strategy.
Now obviously, you are not going
to make money in trading in the long run by flipping a coin. But in this experiment, we
made a profit and we didn't even consider the trend direction while taking the trades. Price has a higher chance of making a big
move in the direction of the trend. Imagine if you simply use a proper money management
technique with a decent trading strategy, you are almost guaranteed to make a profit
as long as you take trade with your brain and not with your emotions.
Even if your heart
rate goes up while taking trades, you are not going to blow up your account if you book
more profits than your potential loss with a decent strategy. Just remember, that the
win rate goes up if the reward to risk ratio goes down, and win rate goes down if the reward
to risk ratio goes up. So if you are going to use a high reward to risk ratio like 3
is to 1, just remember that you can easily lose multiple trades in a row because the
win rate of the strategy will go down. And just because you are getting a high win rate,
doesn't always have to mean you are going to make a profit in the long run if you are
taking less profit than your potential risk.
You should always prefer taking trades in
the direction of the trend, because even if you have a bad strategy, it will perform a
little bit decently with proper money management in the trend direction. In the strategies
I have tested 100 times on the Trading Rush Channel series, I tested most of the trading
strategies in the direction of the trend, and with a good reward risk ratio. And because
of that, most of them made a profit in the end. So be like Bill the business man, and
manage your money. That's all. Like the video if you liked it.
Don't forget to Subscribe and ring that notification bell, so you see trading strategies tested
100 times to find their win rates, after all, you don't want to trade with a strategy that
doesn't work in the long run.
Thanks to all the Patrons for supporting the Trading Rush
Channel on Patreon. Thanks to everyone for watching..