Ralph Vince proved it

I was reading a book on Option Trading this week and I came across the Ralph Vince experiment, it felt like a lesson that equally applies to bettors…

(Note: I paid for the options trading book, but I've just found out that you can get it for free 🤷🏻‍♂️ see the PS if you're interested in Option Trading)

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The Ralph Vince Experiment

Ralph Vince is a well-respected and well-known financial investor and educator. He's published a number of books on trading and the trading industry, and he also performed a very famous experiment known as the “Ralph Vince Experiment".

Mr. Vince took 40 Ph.D.s and set them up to trade with a computer game.

Now, these 40 people all had doctorates but Mr. Vince made sure that none of their doctorates involved any sort of background in statistics or trading.

In the game, each of them were given $1,000 and 100 trades with a 60% winning percentage.

When they won, they won the amount of money they risked.

When they lost, they lost the amount of money they risked. Simple.

With a 60% winning percentage, they would have made 60 * 100 = $6,000.

And they would have lost 40 * 100 = $4,000.

So after 100 trades, they would have made $2,000.

As you can see, ALL of them had a profitable trading strategy because they could have just bet $10 on each trade.

So, after all 40 had completed their 100 trades, how many do you think made money?

TWO!

Only 2 doctorates out of 40 were able to make money.

The other 38 lost money even though they had a winning trading strategy!

Why?

Poor Money Management and “ The Gambler’s Fallacy".

Feel free to hit reply and tell me what you make of that.

All the best

Darren Power

PS Options Trading, I make about $1,000/month from a relatively small trading account, I learned from a friend, but later read a book by Markus Heitkoetter, he laid out a plan and explained everything much better than I could ever explain it to you. If you're interested get the audio book version for free - Click Here

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