What if I told you, you could make money flipping a coin?
Would you believe me?
In this article I’m going to prove that you can.
Who needs a top strategy when you have a coin?
They say that a high liquid, Blue-chip market moves up 70% of the time and goes down 30% of the time.
This means based on probabilities, if you buy a market, you have a 70% chance of making a profit.
If you sell (go short) a market you have a 30% chance of winning.
Now what I’ve gathered over the last 18 years of trading is that if you backtest and forward test a strategy for around 10 to 15 years, your win rate will continue to drop from 70% down to 60% and eventually it will drop to 50%.
This should mean that with pretty much every high win rate, proven and tested system available – It will eventually even out to around a 50% win rate.
My system is no exception.
I’ve back and forward tested the MATI Trader System and have made a living trading it for over 10 years and I’ve seen the win rate drop from 72% down to 62.5%.
I can quite confidently assume that there’ll be a time where my system’s win rate will drop more and more as I have more data to measure. But this should only happen over the next 30 years or so…
However, this doesn’t worry me at all. I know that the average return per year should remain consistent.
Why? Because of the risk to reward rule.
The risk to reward states the amount of money you’re willing to RISK compared to the amount of money you expect to GAIN.
If I use a risk to reward of 1:2, this means for every R1 I risk I’ll expect to make R2.
Or when it comes to my 2% Risk Rule, it means that I’m willing to lose (risk) 2% of my portfolio in order to make (gain) 4%.
I think you know where I’m going with this. Let’s go back to our strategy with a coin.
How you can make an income flipping a coin
So far, we know two statements.
1. No matter what winning strategy we use, the win rate statistics should always eventually drop to 50%.
2. We will need to make sure our winning percentage per trade is HIGHER than our losing percentage per trade.
Now let’s create a trading system using a coin.
Here’s the criteria:
FIRST – Find a handful of markets to trade
Only choose high liquid, highly traded and established stocks or indices e.g the JSE All Share Index or any other main stock index.
SECOND – Flip a coin at market open
As soon as the market opens you flip a coin to see what you’ll buy or sell.
Heads – you buy (go long)
Tails – you sell (go short)
THIRD – Place stop loss below or above a strong level
~ If you buy (go long) place your stop loss price below a strong support level.
~ If you sell (go short) place your stop loss above a strong resistance level.
FOURTH – Use my consistent formula for placing your take profit
With the take profit price level you’ll use my standard calculation for when you buy (go long) or sell (go short).
BUY: Take profit price = [(Entry – Stop loss) X 2] + Entry
SELL: Take profit price = [(Entry – Stop loss) X 2] + Entry
Ok, you got the strategy down…
In the next part, we’ll get into the mechanics on how the “Flipping a Coin Strategy” works, why it works and how to maximise your success using it.