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?

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. Unfortunately 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.