Myths · Nº 001 · 21 July 2026 · 9 min read
Your first winning streak is the most expensive thing you will ever own
We simulated 10,000 traders who trade with no edge at all — every trade a coin flip. After one year, 151 of them were up 25% or more. Only two repeated it. Here is how to tell whether your edge is skill, or the luck that precedes the loss.
Every trader remembers their first good run. Three winners in a row, then five. The account grows 30% in a few months. You start to think you see the market — that the charts are finally speaking to you. So you size up. You tell a friend. Maybe you think about quitting your job. And then, over the next year, the market takes back everything it lent you, plus interest.
This story repeats so reliably that we decided to open Backtest Club by measuring it. Not with anecdotes — with a simulation you can rerun yourself.
"I was up 30% in my first year. I clearly have a talent for this."
The experiment: 10,000 traders with zero skill
We created 10,000 simulated traders and gave every one of them the same strategy: none. Each trader makes 50 trades a year. Every trade is a literal coin flip — a 50% chance of gaining 2% on the account, a 50% chance of losing 2%. We charged each trade 0.1% in round-trip costs, roughly what brokerage, slippage and taxes cost an active retail trader.
No trader in this simulation has an edge. Not one. Anything that looks like talent in the results below is, by construction, pure chance. That is the point: this is what luck alone can produce.
Year one: the market mints 151 "geniuses"
Here is the distribution of first-year returns across all 10,000 zero-edge traders:
Year-one returns of 10,000 zero-edge traders
Each bar is a 10-point band of yearly return. The green tail on the right is where the "geniuses" live: 151 traders finished year one up 25% or more, and the single best was up 58.4% — on coin flips.
The median trader finished year one down 5.8% — costs quietly did their work. But look at the right tail. 151 traders finished the year up 25% or more. Twenty-eight of them were up over 40%. The best coin-flipper in the simulation returned +58.4%.
If those 151 were real people, they would have every reason to believe they were skilled. A +25% year beats most professional fund managers. Some of them would start posting screenshots. A few would open paid Telegram channels. All of them would size up their positions — right before the coin stopped landing their way.
Year two: the geniuses become ordinary
Because this is a simulation, we can do what no Instagram screenshot allows: follow the winners.
| Outcome in year two | Result |
|---|---|
| Median year-two return | −5.8% |
| Finished year two with a loss | 107 of 151 |
| Repeated a ≥ +25% year | 2 of 151 |
The median year-two return of the "geniuses" was −5.8% — exactly the same as everyone else's. That is not a coincidence; it is the definition of luck. Luck has no memory. The 151 best performers of year one carried nothing into year two except larger position sizes and misplaced confidence. Only 2 of the 151 managed another +25% year — almost exactly the base rate of the whole population.
A one-year track record — even a spectacular one — contains almost no information about skill. The lucky group's next-year performance was statistically indistinguishable from the crowd's.
Five years on: the bill arrives
We let the simulation run for five full years. Remember, nothing about these traders ever changes — same coin, same costs.
| Population | Median total return | Below breakeven |
|---|---|---|
| All 10,000 traders | −25.9% | 8,302 of 10,000 |
| The 151 year-one "geniuses" | +6.2% | 66 of 151 |
After five years, 83% of all traders are below breakeven and 1,127 have lost at least half their account — to costs and variance alone, before a single bad decision. Even among the anointed 151, nearly half gave back their entire year-one gain: only 29 of them ever stood higher than where year one left them.
And here is the cruelest number in the whole simulation: after five years, 8 traders were up more than 100%. Eight genuine, verifiable, five-year doubles — produced by coin flips. In the real world, those eight would have books, courses, and six-figure follower counts. Their track records would be completely real. And completely meaningless.
Why this matters for your money
- Survivorship bias is the tip-seller's business model. You only ever see the winners' screenshots. The simulation shows luck alone will always supply a steady stream of them.
- A short track record is noise. One good year — yours or a guru's — tells you almost nothing. The lucky 151 looked identical to skilled traders for a full year.
- The most dangerous moment is right after early success. That is precisely when traders size up. The gains were made with small positions; the reversion is taken with large ones. This is how "I was up 30%" becomes "I lost my savings."
- Costs are an edge — against you. Our traders had a fair coin, yet the median lost 26% in five years. Every trade you make pays a toll whether you win or not.
How to tell skill from luck
Before you trust an edge — your own or anyone else's — demand the things luck cannot fake:
- Sample size. Dozens of trades mean nothing; think in hundreds, across different market conditions. The lucky 151 had 50 trades each.
- A stated, testable rule. If a strategy cannot be written down precisely enough for a computer to trade it, it cannot be backtested — and "trust me" is all that is left.
- Out-of-sample results. A rule tuned to the past will always look brilliant on the past. It has to work on data it has never seen.
- Costs included. Any backtest without brokerage, slippage and taxes is fiction. Costs turned our fair coin into a losing game.
- The full distribution, not the best run. Ask for the worst drawdown and the losing years, not the equity curve that starts at the luckiest possible date.
Every backtest we publish on this site will meet that standard — and when a popular strategy fails it, we will show you exactly how. That is the club membership fee: your illusions.
Methodology
- Traders simulated
- 10,000
- Trades per year
- 50
- Per-trade outcome
- +2.0% / −2.0%, p = 0.5
- Round-trip cost per trade
- 0.10%
- Horizon
- 5 years (250 trades)
- RNG
- mulberry32, seed 20260721
The simulation is deterministic: rerun the script with the same seed and you get these exact numbers. Full source: sim.js (plain Node.js, no dependencies — node sim.js).
Next in the queue: we take the most-shared strategy on trading YouTube — the 50/200 golden crossover — and run it on 20 years of index data, trade by trade, with real costs. Whatever comes out gets published.