I have stopped the Discipline Strategy for now.

As I have shared on previous blog posts, I took away several valuable lessons from doing this on a prolonged basis.  It was rather tiresome having to be ready to trade at 7am every morning.  Thankfully I was in Germany for 5 weeks of the duration, where at local time I only had to be ready at 8am (not that it mattered since I had to get up at 6am to get my nephew and niece ready for school!).  The strategy was never intended to be profitable – but it is amazing how bad the results were:

  • 80 trades
  • 20 winners, 60 losers
  • average win 14.8 pips, average loser 10.9 pips
  • win rate 25%
  • RR 1.35
  • total loss 360 pips.
  • Implied strategy edge -41.2%
  • expectancy per trade -4.2 pips.

Strategy’s Empirical Edge – Given that I was using 10 pip stops and 15 pip targets and that on average the spread was between 2 and 3 pips, and that I was placing the trades at random, I would have expected a negative edge in the range of 20-30%.  Given a small sample size of 80 trades, an implied edge of -41.2% is actually not unrealistic at all.  This should serve as a stark warning to retail traders who operate on strategies with small targets and losses.  Yes, they are not going to be placing trades on a random basis like I did, however they are going to have to be exceptionally good with their directional bias in order to overcome the huge edge they face in the bid-ask spread and/or transaction costs.

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