Danger: The Insane Version Of The Fair Value System

Please don't try this at home.

Try it on your VPS or trading computer, maybe.

But not at home. This is far too scary to bring into your home.

I've gotten a lot of emails (and I've been doing a lot of thinking) about how to "upgrade" the Fair Value system. If you don't know, the Fair Value system is a methodology based on waiting for an extreme moment, taking a series of trades, and then holding until the position become profitable.

The cool thing about trading this way is that about 98% of your series of trades become profitable within a week.

The down side is that it doesn't trade every day. When you have to wait for extreme situations, you obviously don't get opportunities all the time.

We like the fact that waiting gets us a lot of quick winners,  but we also want more trades.

What can we do?

Well, we could take the Fair Value system and put it into hyper-drive.

Honestly, I don't know if I should even be bringing this up. It's a crazy way to trade and is definitely not for everyone (or maybe anyone).

For those who like to live on the edge, though, this post is for you. If you like boring, consistent trading, feel free to look away now.

Keep in mind, I'm not going to release the settings on this system for at least another week. I need to check and re-check the numbers. But here goes.

First, I used the NZDUSD. Why? Because this currency pair is generally benign. It doesn't run off into irresponsible, savage, emotional trends. That makes it a good candidate for what we're discussing.

Second, I took all the principles of the Fair Value system and gave them some performance-enhancers. Then I decided to take only one trade (instead of a series of trades). This enabled me to try to do what I'm trying to do. Last, I put a large stop loss on it, so I could increase the trade size.

And here's what happened.

The winning percentage for just taking one trade at a time went up to 97.48%. That's kind of amazing.

The amount of trades went through the roof. This souped-up version took 1,031 trades from 2005-2017. That's more than twice as many as the traditional Fair Value version. It still doesn't trade every day, but it trades a lot.

And it had four streaks (four!) of over 80 winning trades in a row.

So here's what I was thinking.

What if you took this system --which trades a lot and wins a lot-- and took it to the limit? What if we put the entire account on the line and went for 50% gains before pulling money out?

What exactly do I mean? I mean taking the trade size up high enough where if it hit our emergency stop, we'd lose our whole account. Yikes. But if it went on a winning streak, I'd pull money out every time I made a 50% gain.

It takes about 25 winning trades in a row to make 50% on our account. We've seen streaks way bigger than that.

In fact, here are the streaks:

  • 2005 - 17 in a row
  • 2006 - 122 in a row
  • 2007 - 108 in a row
  • 2008 - 9 in a row
  • 2008 - 57 in a row
  • 2009 - 236 in a row
  • 2011 - 76 in a row
  • 2012 - 62 in a row
  • 2013 - 61 in a row
  • 2014 - 61 in a row
  • 2015 - 73 in a row

If we took all that information and bet it to the hilt, after that time period we'd have a little more than $2,000 hypothetical dollars in our pockets.

We started with $400 and ended with over $2,000 of profits. After all the ups and downs, the big winning streaks, and losing the whole account a few times, we would have over a 500% gain on our account.

Again, we'd see huge winning streaks and also trades that took down the whole account. But if we kept pulling money out and replenishing when necessary, with no compounding we could average almost 50% per year over time.

That's pretty amazing. And absolutely insane.

I'm going to do more research. There might be an even better way to to do it. Once I've looked it over one a few more times, we'll talk about it again.

Till then.