The March To A Million

For over twenty years, I lived for that moment.

The moment when a student's light bulb clicked on, and everything became different.

It really does happen like that. One moment they're scared and insecure and skeptical and--just like that--they become a star.

From that moment on, they walk differently, talk differently, and carry themselves differently. They even think differently.

All in an instant.

Of course, a lot of work went into that instant. The brain is mistrusting and doubtfulness runs deep. But over time, if bombarded with enough evidence, some students finally accept that they can become great.

And once they cross that line, they never go back.

That moment exists in trading, too.

Most of us start out hoping it can be done, and then graduate into worrying it can't be done. Some of us never make it out of that hole.

My goal, however, is to try to present enough information to knock down those walls, to see if we, as traders, can change--just like that.

Sometimes a great mind-opening occurs when studying small accounts turning into big ones. We first did that in the $10k To A Million post, and did it again in $1.4 Million? No, Thanks.

Today we're going to see if a Fair Value 100% system can also do something great.

While the other two systems get the million dollar job done on paper, in real life it would be really tough to take those systems from start to finish. The USDJPY daytrading robot uses stoplosses, and we know that stoplosses tend to make it tough to stay in the game.

And we definitely know that trend-following isn't easy. Trend-following systems only win about 40% of the time, and that's a lot of losing to overcome on the way to $1.4 million.

But what if we traded a system that constantly won (or won around 80-90% of the time)? Could we grow an account through tons of winning instead of suffering through the losing?

I've been working on a system for quite some time that's based on buying things on sale (trading them back to Fair Value), and then holding them until they're profitable. The winning percentage for every series of trades is either 100%, or something close to it.

The problem with that system is that it's hard to get a gauge on drawdown. If the stoploss is infinity, how do you know how much to bet?

The only way to get an idea is to dig into the data and do a bunch of research. Through research, an idea of how much the system can lose becomes more clear, and using that data, trade sizes can be calculated.

At that point, it becomes a matter of drawdown tolerance.

If we believe in the fundamentals of a system, if we realize why it works and believe in it strongly, then it's possible to accept a substantial drawdown and go for something amazing.

If we accept the same drawdown amount as the previous systems (around 50%), then let's see what a Fair Value portfolio could do.

For this analysis, instead of compounding every month, I compounded every year. Why? Less work for us.

It's realistic to assume we could stick to a plan if we only had to do it once a year. While compounding every month (or more) will make more money in the long run, doing something we'll definitely do is better than dreaming of something we probably won't do. So all re-calculating is done at the end of every twelve months.

That being the case, here are the results for the portfolio of five Fair Value robots.

If we took the max drawdown number and took it right up to the limit, the portfolio of five Fair Value robots hypothetically went from $10,000 to over $600,000 in about 14 years.

Remember, the other two systems had lots of stopouts and lots of losing. With this portfolio, you could go months and months without losing a single series of trades.

I'm hoping one of these examples ring true. I'm hoping that a certain run of data or a certain trading philosophy dislodges doubt and opens the door to belief.

The light bulb is sitting there waiting. All we have to do is click it on.