Trading Competitions

On many forums I have seen a number of different forex trading competitions. The winners of these competitions are often used to promote some trading product, or they use their win to promote their own product.

On many forums I have seen a number of different forex trading competitions. The winners of these competitions are often used to promote some trading product, or they use their win to promote their own product.

Sometimes I wonder about these competitions. I used to be heavily involved in the martial arts scene and I had met a number of “world champions”. One world champion I had met, who was a high profile instructor from an Australian martial art club had created his own “world” tournament, invited his own students and proceeded to win. Another Karate grand master I met once who claimed to be the only Karateka to beat a Thai Boxing Champ won when the Thai Boxer slipped in the ring and knocked himself unconscious. Some go even lower and they fake their tournament records, complete with fake trophies on the wall of their dojos. In the trading scene one has to wonder about a number of these trading competitions and how legitimate they are or the means by which they won.

One quite famous trader who built his status on winning trading competitions was Larry Williams. Larry won the Robbins World Cup Championships in Futures Trading. In 1987 Larry pulled off an impressive feat in which he traded $10,000 in real money to $1,147,000 in 12 months. At the peak of his equity curve Larry’s winnings were well over $2,000,000 and they dropped as low as $750,000 after the October ‘87 crash, before he traded back to the $1,147,000 mark by the end of the year.

Now while the Robbins Cup is neither a bogus tournament and Larry’s winnings have been independently verified by the National Futures Association, Larry’s story tells an important story about how legitimate trading competitions are won.

How Larry achieved his spectacular win is documented in several of his books. In one of this books “Long Term Secrets to Short Term Trading” Larry credited his success to the Kelly Formula for money management. By normal risk management standards, the Kelly Formula invites the trader to take on medium to large positions in order to maximize their winnings over the long run. For example, while most books recommend a 1 – 2% position size, it is not uncommon for the Kelly Formula to recommend positions as high as 10 or 11%. The key to winning these competitions is using a system with a reasonable expectancy and taking a number of big bets in the hope that you will get a run of wins and grow your account exponentially. In his book Larry admits that while the Kelly Formula helped him win the competition, these days he uses a much tighter form of money management so his risk exposure is not nearly as high.

If you look at the results for some competitions, it is interesting to see the huge numbers of traders who blow their trading accounts up. Clearly they are using highly leveraged positions or over egging their money management approach in order to win the competition.

So … the next time you are reading some advertisement for a trading course, and the proprietor is boasting how he or his students have won trading competitions, think twice as the competition could be a sham or the competitors are using ridiculous position or portfolio sizes to achieve their gains.

Macrotactics is a blog devoted to recording a part time trader's journey into the world of trading currencies. In my day job I work as a manager in an Information Technology company. I live in sunny Queensland, Australia with my wife, a cat and a baby on the way. I have been banging my head on this trading thing for at least 3 years now and the deeper I dig into the topic of trading, the more I realise there is to learn. Trading for me has become... More