“By now, you’ve already seen Semi-Automatic Forex Engine turning an account of $2,500 to $5,714 in just 9 days……and then… exploding it to $325,931 in 10 months”.

A lifetime ago, I’d have been the first in line.

‘Wow!’ I’d think, ‘I’ll be a full-time trader in no time! After all this is made possible by a ‘unique combination of revolutionary concept, novel trading methodology, and breakthrough technology”.

Nowadays, the maximum temptation to which I succumb to  is to have a look at the ad to see what is being touted. In this case, I think, the ad did not make it that far - it went straight into the recycle bin.

Why?

It’s worth stepping back and asking: what is the essential nature of the market?

The market is an auction process, conducted by individuals, whose combined buying and selling make up the market. That’s right folks behind our probability patterns - be they quant or classical or Market Profile or some new method or whatever - lies the combined actions of humans. And, because humans act in part emotionally, there is NO WAY an event can be forecast; the best we can look forward to is a high probability scenario.

The difference between ‘forecast’ and ‘high probability scenario’ is important. With a forecast, we rightly expect that events will unfold as forecast with no possibility of deviation; with a high probability scenario we have the possibility of being wrong. In turn, in this difference, lies the reason why no trading method alone will deliver the implied promise of long-term success.

To turn $2,500.00 to $5,714.00 in 9 days, means the trader either had a position size with a high risk of ruin or had a phenomenal run of profitable trades. The move from $2,500 to $325,931 suggests it is the latter. But here’s the bad news, the run won’t continue.

The market is a self-learning organism. The only way to sustain a unique approach is to keep it to oneself (and even then, the long-term continuation of a high win rate remains in doubt). However, in this case, the mass marketing sows the seeds of own destruction. The more traders use the approach, the greater the diminution of the win rate. With that diminution, comes the danger of ruin.

If you want an example, you need to look no farther than Long-Term Capital Management. Given the money under management, its results were spectacular. But eventually the market ‘caught up’ with the edge; and the lack of risk management control ensured ruin.

Tomorrow I’ll illustrate this idea with a recent example from my own trading.

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