Is it possible for me to manage to increase my portfolio if several of my predictions turn out to be off the target? I know: you’re wrong, you lose, but is there perhaps a way to profit even if I have made a series of bad decisions?
This is something we often strive to emphasize. What one can lose or earn depends on the good balance between speculation and investment parts of their portfolio. Assuming that one is utilizing a small part of their capital to execute a speculative position with options, it will be usually enough to win at least one out of several couple of trades. If the probable gain is bigger than the maximum loss (100% here) then betting on a given move can be profitable even if the odds of that move taking place are lower than 50%.
Here's an example: imagine that we are in situation when we can win one out of every three trades we make (33% chance of winning ) but when we lose, we lose only the amount that we used for this bet. However let's assume that winning will produce a 20-fold gain (2000%). Isn't it worth to risk being wrong (there is 67% probability that one is wrong here)? Certainly it is and that is what we call a favorable risk-reward ratio. But how much should one put in that trade? Simply use our Position Size Calculator to obtain the answer (type 33 as the short-term probability and 2000 as short-term profits - you will see that using more than 29.6% of your speculative capital for such a trade is not the most profitable idea).
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