I love trading contests.
They're thrilling and vague and inspiring and intimidating. I'm kind of obsessed with them.
But seriously, have you ever looked at the results of one? They're amazing!
Take a recent myfxbook contest, for example. The first-place winner made $3,000 real US dollars, due to the fact that he or she made 7,903% on his or her demo account...
IN ONE MONTH!
Isn't that fantastic?!? Let that soak in:
- A contest that ended in September, 2016 featured a winner that made 7,900% in thirty days.
- That means that a sample $10,000 account turned into about $790,000 in four weeks! By the hammer of Thor!
How great is that?
But it's also easy to get a little bit depressed.
Sure, some anonymous trader person can do that, but I never will. Heck, the experts tell me to be happy with 7% a year. Going for 7,800% in a month is fantasy land. It's probably not even real.
So, are these contests just fantasy? Are they something to be inspired by or something to ignore because they're fake news? Let's take a deeper look.
The first thing to notice is the leverage. The winner made 152 trades in about 20 trading days (that's a lot!) and traded a total of 6,596 lots (that's also a lot!). And I noticed that some of his/her trades had 100 lots or more on a single position!
That can be explained, though, by the rules of the contest. The contest allows for 200:1 leverage. I think I currently get about 30:1 on my accounts. [Note to governments and brokers: Regulation is super fantastic.]
Once we get that out of the way, though, things start to become more real.
Assuming we could get 200:1 leverage (which we can in Contest World), how could we do? Could we ever hope to compete with the Online Trading Contest Wizards?
I took the data of my Hornet robots to see how they would do in a contest. I used the Hornet because they trade most often and use bigger trade sizes. Trend-following could work, but there's a chance we could enter a contest and get zero trades! Fair Value 100% trading could work, but it's also possible to get into a drawdown right when the contest started. We want to win this thing, so I thought Hornet might be best.
Using the Hornet, I decided to trade four robots at once. I usually like to focus on one or two robots, but I think we need more trades to win. So I used USDJPY, EURAUD, USDCHF, and GBPUSD. Those four don't have much overlap (mostly non-correlated), so I thought that would be prudent. I don't care what Dana Carvey thinks.
Then I did a bit of cherry-picking. Forgive me. I went back to a recent month of data that was a decent winner. I wanted to see what a big upside might look like, so I used a good month of trades that happened in November, 2016 (there are several other months better than this one, so don't judge me!)
How could we have done?
If we happened to randomly enter a trading contest in November, 2016 and traded it for one month, here's how we would have performed.
[Keep in mind, that we're using 200:1 leverage and compounding with every trade.]
Our contest results from Nov., 2016? We would have had a one-month profit of $425,148. Take that for data!
If you're scoring at home, that is a one-month percentage gain of 4,251%. That wouldn't have won that particular contest, but do you know how it would have finished? Second place! And the prize for coming in second? $1,500!
But what does it all mean?
The first, most important take-away is that these contests are not out of our league. It's easy to look at contests like these and think, "We'll never be good enough." Guess what? We are good enough. A simple, automated daytrading system can compete with the superstars (if trading contests traders are superstars). That's a big deal.
Second, leverage matters. I know most traders fail, and I know the powers-that-be are just trying to protect us from ourselves. But gosh darn it! Imagine the things we could do if we had leverage like that.
Third, it's really, really tempting to try to find a way to get that leverage. That's probably a bad thing. I have no idea if this is possible, and I think maybe I don't want to find out. Maybe.
Fourth, I feel like I want to lock myself in a room for a month and figure out a way to get big, one-month, contest-like returns.
Last, it's all just speculation and fun. These trading contests are all in Demo mode. No real trades are taken, and we all know real trading is different from demo trading. Plus, that amount of leverage is not available for everyone. Plus, I used a specifically good month for presentation purposes.
But that doesn't mean we shouldn't try to possibly win a little cash in a contest one day.
And that doesn't mean it's wrong to think really, really big.
"When you believe, your mind will find a way to do."
-David Schwartz, Magic of Thinking Big
My new website is here: https://www.scottwelsh.me/
My new eBook, The Inevitability of Becoming Rich: An Interview with a Master, is available on Amazon, and you can get it here.