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Don Kaufman here. |
Okay, so Tuesday I showed you the 72% probability in-out spread methodology. |
You've been waiting for parts two and three, and I'm gonna deliver, okay? |
But first, let me ask you something. After Tuesday's piece, did you go look at your last 10 trades? |
Did you check how much you risked on each one? I bet it's all over the place, okay? I bet you risked $200 on one trade, $800 on another, maybe $1,500 on the one you were "really confident" about. |
That's exactly the problem. And that's why even with a 72% probability trade, most people still lose money. |
The Gaming Theory Nobody Understands |
Here's what I didn't tell you Tuesday, okay? |
The equal allocation isn't just some nice-to-have organizational thing. It's absolutely mathematically essential for this to work. |
Let me break this down for you, okay? When I say we have a 72% probability of making 55% or greater, that's only true if you bet the exact same amount every single time. |
The moment you start betting more on your "high conviction" trades, you destroy the mathematics. |
Why? Because you don't have an edge on individual trades. You have an edge on the series of trades. Big difference, okay? |
Think about it like this - if I flip a coin and it's heads 6 times in a row, what are the odds the next flip is tails? Still 50%, right? But people think, "Oh, it's gotta be tails now." That's gambler's fallacy. |
Same thing with trading, okay? Just because your last trade was a winner doesn't mean your next trade has better odds. Just because you feel more confident about one setup doesn't mean it's actually more likely to work. |
You know what I mean? Your conviction - and I don't care how smart you are, I don't care how much experience you have - your conviction about individual trades is basically worthless from a mathematical standpoint. |
Why Everything in My Account is Still $500 |
I told you Tuesday that every in-out spreads trade I do is $500 in risk, give or take 50 bucks. Let me show you why that's not arbitrary, okay? |
We ran Monte Carlo simulations on 20 years of actual trades. When we varied position sizes based on "conviction" - even when the conviction was right more often than not - the overall returns got worse. Significantly worse. |
But when we kept every bet exactly equal, the 72% probability held up. The 55% gains held up. The positive expected returns held up. |
Here's the thing people don't understand about gaming theory, okay? It's not about being right on any individual trade. |
It's about the mathematics playing out over multiple occurrences. And for the mathematics to work, every occurrence has to be identical in size. |
Look, I mean, this is where most traders completely lose the plot. They think trading is about finding the best setups and betting more on those. But that's not how probability works, okay? That's not how any of this works. |
What I'm Looking at Right Now |
Okay, so let me show you how this works in real time. Yesterday I'm looking at UBER… |
It closed at $90.90, right up against those all-time highs I was telling you about. |
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I did a $4 wide in-out spread - bought the July 18th 91 call, sold the 95 call - for $1.70. That's less than 50% of the spread width, so it qualifies structurally, okay? |
UBER's been butting up against this all-time high level, and you know what happens when these things finally break? |
Retail comes rushing in buying calls like there's no tomorrow. The expected move covers my $4 risk more than twice over. |
But here's what I didn't do, okay? I didn't risk $1,000 on this trade because "UBER's got great momentum" or "I really like this breakout setup." |
I risked my standard $500, just like every other trade. |
Why? Because this trade doesn't have better odds than any other qualifying trade, okay? The structure gives it 72% probability, not my opinion about UBER or breakouts. |
You know what happens when I start thinking I'm smarter than the structure? |
I become just another trader who had a good system and then screwed it up with my ego. |
The $100 Challenge I'm Giving You |
Here's what I want you to do, and this is gonna be uncomfortable for most of you, okay? |
For the next month, every single trade you make - every single one - risk exactly $100. Or $200. Or $50. I don't care what the amount is, but it has to be identical every time. |
No exceptions. Not "well, this one's different." Not "I'm really confident about this one." Identical risk, every single trade, okay? |
You're gonna hate it at first. You're gonna want to bet more on the "good" setups. |
But that's exactly the problem. Your conviction has nothing to do with the actual probability of the trade working. |
I mean, look, I've been doing this for 27 years… |
And I can tell you with absolute certainty - the people who make money consistently are the ones who treat trading like a business with systematic processes. The people who lose money are the ones who treat it like gambling with varying bet sizes based on how they feel. |
The Mathematics Don't Lie |
The 72% probability only works with equal allocation, okay? The 55% gains only work with equal allocation. |
Take away the equal allocation, and you're just gambling with better odds. |
And here's the brutal truth nobody wants to hear - your conviction about individual trades is probably wrong more often than it's right. But the mathematics of proper structure with equal allocation? That's been right for 20 years running, okay? |
You know what the difference is between a professional trader and someone who's just messing around? The professional knows that the system is smarter than they are. The amateur thinks they can improve the system with their opinions. |
What You Should Do Right Now |
Set your risk amount. Write it down. $100, $200, $500, whatever fits your account size. Then stick to it religiously for the next 30 trades minimum, okay? |
Find qualifying setups: Expected move covers spread width by at least 2x, never pay more than 50% of spread width, equal allocation every time. |
Track every trade. Not just the winners - every single trade, okay? Because the mathematics only work when you see the full series, not just the highlights. |
And stop trying to outsmart the system with position sizing. The system already accounts for probability. Your job is to execute it consistently, not improve it with your opinions. |
It is what it is… |
The math works when you let it work. The moment you start thinking you're smarter than the math, you become just another trader chasing their tail. |
To your success, |
Don Kaufman |
P.S. If you missed part one, you can read it here. |
P.P.S. Want to learn more about this strategy? Check this out. |
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THE MATRIX EXISTS (IN THE NQ) |
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Tony Rago cracked the code: 10 hidden price patterns 99% of traders never see. |
One shows exactly when institutional money FLOODS in—before the move happens. |
→ Watch The Training Here |
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