I took 100 trades by spinning a wheel. Why? Because when I started trading around eight nine years ago, there was one concept that completely changed how I thought about trading.
It had one of the biggest impacts on my entire trading journey. In fact, I probably wouldn’t have ever made a profit if I hadn’t learned this one thing.
So, I want to pass it on to you. I hope it helps you as much as it helped me and improves your probability of becoming a profitable trader.
You see, when I was a beginner, I read about a simple experiment. The rules are really simple.
Number 1: Forget everything you’ve learned from trading gurus. Forget all strategies.
Number 2: Open any chart and take trades by flipping a coin. You can even ask your neighbor’s dog for trading advice. It doesn’t matter, as long as your entries are complete random nonsense.
Number 3: This is the most important rule. You have to risk 1% of your account on every trade. It can be less, but never more. And use a reward-to-risk ratio of around 1-to-1. Don’t set huge profit targets.
To show you what I saw when I first did this, I’m going to do the experiment again right now.
I went to Google and found a spinning wheel. I opened a forex chart, in this case, EURO JPY 30-minute timeframe. Then, I spun the wheel. If it landed on a dark color, I took a long trade. If it landed on a light color, I took a short trade. I let each trade hit its profit target or stop loss before taking the next one. For consistency, I used a 1.5-to-1 reward-to-risk ratio on every trade.
I did this 100 times. And here’s what happened.
The win rate I got was 43%. Since I used a 1.5-to-1 reward-to-risk ratio, my breakeven win rate was 40%. In other words, I actually made money by spinning a nonsense wheel.
Now, obviously, I got a little lucky. If I kept spinning the wheel forever, my win rate would eventually settle right around the 40% breakeven point.
But when I did this as a beginner, I learned something really important. If my win rate stays around breakeven, even with random, nonsense trades, then there is no way my strategy is the reason I was blowing up my accounts. I realized that I should stop focusing on and searching for strategies completely and focus on what was actually blowing up my accounts.
When I made this switch, I realized one of the biggest secrets to trading success.
The whole point of the experiment, taking random trades but risking only 1%, is to prove that it’s almost impossible to blow up your account if you just focus on your risk. I had heard that money management was important and all. But after intentionally trying to blow up the account in this experiment, I finally understood.
It doesn’t matter if you take trading advice from your neighbor’s dog. If you forget everything else and just focus on managing your risk on every single trade, you will almost never blow up another account. It is said that around 90% of traders lose money. But by focusing on risk alone, you will automatically be doing better than 90% of other traders.
I know you’ve probably heard that money management is important, like I did. But I want you to actually try this experiment on a demo account. Try to intentionally get your practice account to zero. The only rules are: you can’t risk more than 1% per trade, and you have to use a reward-to-risk ratio around 1-to-1.
I bet you will learn more about trading from doing this than almost anything else.