How To Tell When Someone is Lying About Trading

Here is one quick way to tell if someone is lying about their trading. 🚨

“I trade with a 1:1 risk-reward ratio and I win 80% of my trades.” 🎯

100% nonsense. ❌

For the sake of argument, let's assume that a trader makes 2 trades per day. (The average is somewhere between 10-20 per day, but let’s be conservative.) 🤔

We’ll trade at 10:1 leverage for a 15 pips target and a 15 pips stop twice per day. 📈

There are 250 trading days in a year. That means you will make 500 trades. At an 80% win rate and just $1 per pip, you make $45,000 by the end of the first year. 💰 Rinse and repeat. 🔄

By year two, I now have $280,000 in my account. By year three, the account is now worth $1,120,000. In three years, you have increased the account by 10X. 🚀

Now let’s understand why such claims are total nonsense. Every trading strategy has something called the winning edge. It’s easy to calculate. The winning edge is basically the percentage difference between your win rate and your break-even point. 📊

For example, if you trade with a 1:2 risk-reward ratio (risking 2 to make 1), your breakeven would be about 67%. If you won 70% of your trades, your winning edge would be 3%. 📉

Some points of reference: in blackjack, the casino edge is about 2%. In roulette, the edge is somewhere between 2-4%. Renaissance Technologies, the world’s most famous and longest-running quant fund, has a winning edge of about 2% on the millions of trades it takes. Virtu and Citadel -- the biggest HFT market makers in the world -- are similar. 🏦

So, when someone on a podcast tells you they win 80% of their 1:1 risk trades, that means they are claiming a 30% winning edge. (80% - 50% breakeven rate). 📉

They. Are. Lying. 🚫

The reason why this is so upsetting is that it does a terrible disservice to many new traders who are trying to succeed at this game. It’s a Bernie Madoff type of hustle precisely because it seems so reasonable and attainable. Remember, Madoff ran his Ponzi scheme by being modest. He didn’t claim multi-hundred percent returns. He simply claimed a steady 1% gain every single month. His hustle was so toxic because it was so believable. The same goes for every con artist on the web who claims they “rarely lose on their trades.” 🚨

Real trading is about losing all the time, every day. It’s about clawing out a 3% edge and trying to keep it for as long as you can. 💪

So don’t be fooled. Trading is a game of inches. So anchor your expectations properly, please. ⚖️

Also, the next time you see a trader on YouTube driving a Lambo, then for SURE he is lying. 🏎️💨