I am creating this page to answer a question that seems to be popping up quite a lot about the system, why 10XROI? Also as pointed out by a reader in an email, doesn’t it make a difference as to how old the trend is, surely the older trends produce less ROI.
That is true and when you get to the Pyramid Your Trades to Profit book you will see how this all fits together however with the 10XROI system we are looking for a trade that takes place with enough momentum to give a 1-10 ROI. When I was designing the system, I asked myself the question what ROI gives the most profit?
From my back testing I found it was 10XROI, of course there are a lot more 7XROI and a lot less 20XROI and I back-tested with 5,7,10,15 and 20. In the book I do provide a caveat to the 10XROI which is where the stop is large and the daily range not so large and so I advise to go for a 1-8 ROI. Also I advise that if approaching a higher time frame level such as a weekly trend line and approaching with a lot of momentum that it would be wise to take profits at 1-8.
This large fixed take profit was decided on so I didn’t have to make decisions while in the trade, that removed a large amount of stress for me. The problem with having to decide on a take profit while in the trade is that is so easy during a pull back to talk yourself into exiting the trade. Over time this results in smaller profits even if there is a higher win rate. However I also put the caveat at the end of the book to take what works for you,so if you find after back testing that you want to exit at 1-5 or 1-7 then go for it!