The Doubling Down Forex Trading Strategy

This article is to discuss using mathematical probabilities to your advantage in a successful forex trading system. I'll try to make it simple to explain.

If you have a trading system that utilizes a 100 pip target (TP) and 100 pip stop loss (SL), it should have a 50/50 chance of winning if trades are entered at random over time. It'd be like flipping a coin. The TP and SL would have to be adjusted since you are closer to the SL as soon as you enter a trade. But let's keep it simple theory for now.

If we enter a trade that is equidistant from the SL and TP then there should be a 50% chance of being correct. I will then assume that by actually looking at the general trend or market activities of a currency that we can give us a system that is more than 50% successful or at least 50% successful if my first assumption was incorrect.

The probabilities haven't come into play yet though. I'm asking now what are the chances of a 50% correct currency trading system having consecutive losers?

If I remember correctly from college we have a 50/50 chance on each trade to be right and wrong when we view them as independent events.

When we try to find the probability of having 5 losing trades in a row, however, the chance of that happening is then:

.5 X .5 X .5 X .5 X .5 = .03125 or 3.125%.

Doesn't happen too often, although still very possible.

If our trading system is successful 60% of the time due to our simple chart reading predictions then the chance of having 5 losers would be 40%^5th power.

.4 X .4 X .4 X .4 X .4 = .010124 or 1.0124%.

Still possible, although with some discretion we've effectively lowered the risk of losing 5 times in a row by a factor of 3.

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