Forex $1 MM Challenge…The Fat Tail Theory

After one takes enough trades, the results will follow a normal distribution where the probability of those returns will move between the mean and three standard deviations, either positive or negative, is approximately 99.7%. This means that the probability of returns moving more than three standard deviations beyond the mean is 0.3%.  The fat tail theory states a very small percent of your trades will move beyond three standard deviations.


A simpler version of the fat tail theory is Pareto’s Rule. The Pareto principle (also known as the 80/20 rule, the law of the vital few) as it relates to trading means, roughly 80% of your profits will come from 20% of your trades.

As I was reacquainted with Forex at the beginning of 2019, the first quarter was just finding my way again.
Luckily, I broke about even for the quarter with a 29% win rate.

With one trade covering all my loses.

Forex $1 MM Challenge – Trade #8 (3-27-19) Bought SGD/CHF

However, I anticipate this quarter having at least two more fat tail trades (but anything can happen) as I find my edge by staying on the higher timeframes and letting trades ride out for weeks…win, lose or draw. Two open trades at this time include:

Forex $1 MM Challenge – Trade #7 (3-25-19) Sold NZD/CAD

Forex $1 MM Challenge – Trade #11 (4-15-19) Sold AUD/CAD

And this is why I don’t get hung up on the loses because as long as I cut my loses off short and let my winners ride, the losses will lead to the winners.

My Journey Into Forex – Part 3 of 3 (The $1 MM Challenge) – Part 2

This post is my personal opinion. I’m not a financial advisor, this isn’t financial advise. Do your own research before making investment decisions.

Related posts

Forex $1 MM Challenge – I Missed My EUR/GBP Short Trade


Forex Analysis Report 5-24-19…Possible Trade Set-Up To Short Euro/Jpy


Forex $1 MM Challenge – Trade #6 (3-21-19) Bought CAD/CHF


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