I am now researching in the course your “impossible to lose” concept. I am very intrigued by this and want to master it, even if it means only a few trades per month. If you can lever up it can be highly worthwhile. Do you recall any recent examples of these impossible to lose type trades?
I’d assume it would involve a tight stop and loading up the lots….going for the jugular.
Most of the time the trades that are impossible to lose revolve around capturing the intraday volatility. Trades that last a few minutes to a few hours to a maximum of around one day. So you generally always take profit by the end of the day at the latest.
My favorite type of setup and probably the easier and cleanest setup is the news trade where it FM spike + Go for intraday move or ODVE. And the FM news spike + sent shift for the day. Those are generally the best types of trades that can be categorized as “near impossible to lose.” Though I must say that just because you see intraday vol is a specific direction, and see a nice catalyst, doesn’t necessarily mean that the trade was new impossible to lose at that moment in time. It may have had a very good win rate, but you just can never pinpoint exactly. Usually it is somewhere in the range of 60 – 90% win rate, depending on what unforeseen macro forces and/or news could have come in to shock the market and cause the market to reverse, and depending on how the market was positioned and where the potential macro exhaustion point for the scenario the market was playing to would be.
The news trades where you fade the news spike or fade the stops could also potentially be high win rate, but they do include an added degree of complexity to them.
So you are looking for a situation where a large amount of capital was priced for a certain scenario, but some news/information flow came out which caused a mini “game changer” situation which lasts for a few minutes, hours, or approximately one day. A sizable portion of the market gets caught off guard and they either need to liquidate prior positions which were in the wrong direction, and/or initiate fresh ones. The big “game changer” situation is one where it causes a MDMM or GM movement. The smaller shifts in expectations can cause the intraday volatility.
The longer you hold the trade, the greater risk that unforeseen news/information flow that is detrimental to your position can occur, or general profit taking can occur due to macro exhaustion of the intraday or ODVE scenario.
The general principle is: The more leverage you use, the quicker you are to cut the position and cut leverage if the position is not moving in your favor.
As Victor Sperandeo said:
When you’re trading at your biggest, you should be making money instantaneously.
And as a few articles described Paul Tudor Jones back in the 1980’s:
Trades lasting hours, or days at the most. Losing positions are liquidating almost immediately.
In the market, he sticks with winning positions no longer than three or four days and tries to bail out of losers in minutes – hours at most.
Various potential examples in the currency market since the beginning of the year could include:
AUD: February 3: RBA Rate statement
January 15: Employment Change
CAD: January 22: BOC Rate Statement
EUR: February 6: ECB Press Conference
January 23: French and German PMI’s
GBP: January 22: Unemployment Rate
There are of course other potential examples in the futures market with S&P, bonds, etc, and individual stocks as well.
There are generally two types of trades that are “near impossible to lose.”
1. The first is like a Soros breaking the Bank of England type of trade, where the market is mispriced by 500 or 1,000 pips due to a very heavy economic imbalance that has already happened. And a 500 – 1,000 pip movement is imminent. So most of the unforeseen scenarios that can move the market against you will not be able to overwhelm the huge 500 – 1,000 pip move that has to happen.
As Stanley Druckenmiller described the 1992 sterling trade in More Money Than God:
I didn’t think that sterling moving to the other end of the band was remotely possible. I felt very strongly that just couldn’t happen because these economies were so ass-backwards. So yeah, theoretically it could have gone to the other side of the band. I didn’t even consider it to tell you the truth.
Druckenmiller was saying how he didn’t even consider the possibility that the trade to short the GBP would move the other side of the trading band (and thus strengthen). Because he felt the immediate macro forces (economies were so “ass-backwards”) were too strong.
Oblivious, these types of trades are rare and do not happen every year.
2. The second type of trade is much more numerous. They consist of the 60 – 90% potential success rate, 50 – 200 pip movement trades that work most of the time, but you are still susceptible to things like profit taking, unforeseen scenarios that cane come to blindside you, etc. But these are the far more numerous types of trades. They form the intraday volatility, ODVE and MDMM movements that you see on the charts.
Here is some more information that you may find helpful to input into your mindset:
As you can see, the bigger the daily move you expect, the maximum opportunity set for such moves rapidly drops. There are far more 100 pip daily moves, than there are 500 pip daily movements.
To summarize, the key criteria components of trades that are near impossible to lose:
1. Easy Money vs Difficult Money. Find the easy money, the clean volatility.
2. You should be making money instantaneously, within seconds, minutes, hours, or 1-3 days or so.
3. Lots of capital have to bail out of the wrong scenarios
4. Lots of capital piling into the new scenario