How to multiply your profits with the parlay method
What if there is a simple way how you can multiply your profits?
What is it?
As the Wiki says:
A parlay, accumulator (or acca), combo bet, or multi is a single bet that links together two or more individual wagers, usually seen in sports betting. Winning the parlay is dependent on all of those wagers winning together. If any of the bets in the parlay lose, the entire parlay loses.
A simple example
Let’s take the coin flip example. On every try, you have a 50/50 chance for a win. If your win is double the size of the loss, or reward is double the risk, after enough tries, your gains will be higher than your losers - you will be making money.
Let’s get a random number for the trade outcomes and count the money when risking $1. 0 represents a loss and 1 represents a win.
0 1 1 0 1 0 1 1 0 0
-1+2+2-1+2-1+2+2-1-1=5 or $5 or 5R
note: there can always be an inevitable losing streak as mentioned in this post
Now imagine you risk the double R after a win until you hit a loser again
for this sequence of wins, it would be
0 1 1 0 1 0 1 1 0 0
0(-1R) 1(+2R) 1(+4R) 0(-2R) 1(2R) 0(-1R) 1(+2R) 1(+4R) 0(-2R) 0(-1R)
-1+2+4-2+2-1+2+4-2-1= 7R
Which is obviously more than 5R. What if we quadruple the risk after a 4R win?
-1+2+4-4+2-1+2+4-4-1=3R
Which is obviously worse than 5R.
Finding the sweat spot
I have built a random trade generator which generates a random set of trades based on the entered win rate. This way I can count if the parlay is worth or not. It also counts the losing streak length for me. I count the parlay for 102 and 720 trades, which could represent a yearly set of trades, depending on how many trades you take.
So where is the sweet spot for double parlay or triple parlay?
Let’s say your stats are 3R average win with 50% success rate.
To explain the table data:
With simple trading, we can expect 6 trades no winner or -6R drawdown anytime within the trading year.
Double parlay gives us 233R versus 121R simple trading so nearly double over a set of 102 trades and the near double is confirmed for 720 trades as well making 1213R over the year
The losing streak over the year for double parlay is 28 trades no win
Triple parlay is a bit more favorable than simple trading 137 vs. 121 or 837 vs.705
The losing streak for triple parlay is 64 trades no win
with 50% success for a 3R win, the double parlay method doubles the profits.
I ran more simulations for the same stats, so you see the variances, but the conclusions are similar each time, which confirms the theory.
Where is the catch?
There is always a catch if you can make free money, isn’t it? In this case, the catch is in the human nature of doing mistakes and enormous pressure of the no win losing streaks. You need to be sure not to do mistakes so that your stats really work for you. And be ready for the long losing streaks.
Another problem can be your buying power. You just might not have such big account to be able to parlay at all. On the other hand, it can allow you to risk less per trade, which is usually a good practice as it keeps you in the game longer.
Will it work for me?
If you want to know the answer to the above question, you need to run the simulation against your own stats. If you do higher reward trades like parabolic reversals with the stats of 25% success rate and 5R average winner, you have to parlay. But beware the losing streaks.
60% with 2R average winner is not meaningful
Knowing that, we can say that it applies to higher winning Rs only.
Conclusion
If losing 20–30 trades in a row does not suit your personality, it is not for you. At least you can try and see, or once your stats improve, double your profits instantly with this simple method.
I never counted quadruple parlay, as the losing streaks would be enormous, and it would require much higher rewards or success rates.
This can be also the reason to try to improve your average winners as now you know that since one point, there will be double money for you.