You do not know for sure what chances for success your next trade has, even if you have a general understanding about the historicals on that specific edge. That is why it’s important to track a 20 block vs individual trades. Let’s consider the following situation by way of example.
The trading system showed the 1.5 relation of profitable trades to loss-making ones (that is, 60% of the trades were profitable) in a series of 250 trades. However, note that, out of the total number of trades, 100 trades were closed with a loss. It means that, in principle, there could be a situation, when you can have a big series of losses. I’ve personally experienced situations in the past, and I know this will happen in the future, where I put on trade after trade and I get hammered. I’m at a point now where this doesn’t bother me or affect my trading head space. Why? Because I know my system works over the long term. I also know that on any given trade my risk is always managed correctly and the upside is
always greater than what I'm risking.
It is an unpleasant situation, but the probability of it happening does exist. You could very well flip a coin, wanting to hit tails, but instead hit heads 5 times in a row. Does it mean that the probability of your system is lost? NO…it simply means you’ve hit the wrong side in succession…BUT, over a longer period of time your system will prevail. Plus, there is the other side of the equation that nobody will argue with and that's when you hit 5-6 monsters in a row! Trades LOVE back-2back jacks!
Clearly having a trading strategy with an edge will see that you come out ahead if you make enough trades. It is for this very reason that I track my trading performance over blocks of 20 trades. When I'm reviewing (what I call) a "20 block" I'm looking for a few simple things… how many times did my trading opportunity hit my target and what was my Reward vs Risk. In my personal opinion, for whatever it's worth, trading probabilities are not just subject to patterns and the catalysts that push prices higher, but also the potential reward and the risk you're willing to pay.