Asymmetric profits, are they even possible?

Most traders think in symmetrical terms. If you lose 5 points in trading, you win 6, 7 or 10 and so on. 

By symmetrical I mean there is no option to earn significantly more if you are right. 

For example, iIf a forex trader is trading with a standard lot, 50 pips loss just means -$500. If he wins 50 pips, he "only" earns $500 $, and not $5000 $.

A trader with symmetrical results often needs to achieve a hit rate of over 50% to make a profit. In other words, he must make good predictions if he wants to trade profitably.

Asymmetric results are exceptionally high profits compared to the usual results. Although they might be rare, they can dramatically improve your profitability.

The problem is,: if the trader tries to align himself on asymmetric results, they seem to miraculously elude him.

In other words, asymmetric profits hardly ever occur in most trading systems. At least not with conventional instruments such as forex or futures (which are inherently symmetric in design).

Options are an exception. These instruments are designed in such a way that asymmetric results are possible. Let us say gains of 500% or over 1000% with just one trade. 

If for some reason you do not want to get involved with options, there are still ways to achieve asymmetric results.

Here are some suggestions:

Only enter trades where you have a risk reward ratio of at least 1/10, or better 1/15. You will have to find pivots in the market where you can make a high profit with a very tight stop. Such a strategy requires a strong discipline. You must be able to wait for such moments.  

A sSecond possibility would be: the trader buys additional contracts when he has a winner. 

Although this goes against the "emotions" of most traders, it seems to me to be one of the better methods to achieve asymmetric results.

Let us say a trader is trading the oil market. On average, he has winners of 10, 15 or 20 cents per trade. Every now and then he catches a bigger trend and can make over $1 profit.

Let us say he usually trades five futures contracts. But what would have happened if he had not traded with five contracts on the $1 trade, but with 25 contracts by simply adding to his position?  

Back to blog