Obviously, success at trading depends on more than win rate. If you take excessive risk on your 70% win rate trades than on your 55% win rate trades, you can go bankrupt, this is obvious.
But more importantly, and even more uncomfortable to accept, I find that a strategy with a high win rate, even if verifiable by its developer / users, doesn't mean that I can make money out of it that justifies the risk/effort. On the other hand, its also possible I could run a low win rate strategy better than expected. The point is, the most important and biggest unknown X factor in whether a strategy wins or loses, is each one of us.
But more importantly, and even more uncomfortable to accept, I find that a strategy with a high win rate, even if verifiable by its developer / users, doesn't mean that I can make money out of it that justifies the risk/effort. On the other hand, its also possible I could run a low win rate strategy better than expected. The point is, the most important and biggest unknown X factor in whether a strategy wins or loses, is each one of us.
alexaherself
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Win-rates don't matter much.
Expectancy matters.
If you read one or two beginners' trading textbooks (such as Van K. Tharp's Trade Your Way to Financial Freedom, Tushar S. Chande's Beyond Technical Analysis and Michael Harris's Profitability and Systematic Trading), you'll find the authors explaining why, for aspiring traders, it's generally both easier and better to use systems with win-rates below 50% than systems above 50%.
I intend the comment helpfully and not critically, but if you're looking at a system with a win-rate of over 50% and wondering "whether it's high enough", then boy: are you ever looking at the wrong parameters?.
dbphoenix
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Win-rates don't matter much.
Expectancy matters.
If you read one or two beginners' trading textbooks (such as Van K. Tharp's Trade Your Way to Financial Freedom, Tushar S. Chande's Beyond Technical Analysis and Michael Harris's Profitability and Systematic Trading), you'll find the authors explaining why, for aspiring traders, it's generally both easier and better to use systems with win-rates below 50% than systems above 50%.
I intend the comment helpfully and not critically, but if you're looking at a system with a win-rate of over 50% and wondering "whether it's high enough", then boy: are you ever looking at the wrong parameters?.
Actually, the opposite is true. Those who write these kinds of books are talking about theoretical constructs, like "expectancy", not trading realities. A trader -- most particularly a beginning trader -- who has a win rate of less than 50%, much less 30%, is highly unlikely to possess the psychological equanimity to let his winners run when(if) they eventually make an appearance. Given that the P:L will then suffer, the win rate becomes even more important.
A trader who has a win rate of less than 65% needs to revisit his plan.
Db
Forexmospherian
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Interesting one this and a great example of why "win ratios" on their own are not the only answer needed.
I would personally prefer a higher win ratio - not just for the reason db as mentioned - but simply because they are possible and so why be satisfied with a low 35 -45% win ratio - even though you can still have a winning method that can be far more profitable than a 80% win ratio.
If you use a similar example mentioned by Cobrien - lets say one method as a 50% win ratio and his other 75% win ratio. But one method as larger stop losses nd lower targets - whilst the 50% win ratio as fairly tight stops - but far higher targets >
Results then might be as followers
100 trades ( forget win ratios on any number under 30 trades)
50% wins at 35 to 50 pips - say average 40 pip x 50 = 2000 pips
50% losses at 14 to 20 pip stop size - say average - 17 pips x 50 losses = minus 850 pips
So net result over 100 trades with a 50% win ratio = 2000 -850 = 1150 pips
Other method - ie a 80% win ratio - based on 100 trades again
Win targets are 3 to 8 pips - average 5 pips
Stop loss size 15 pips set in stone.
Results - win pips = 80 x 5 = 400 pips
Losses - 20 losses at 15 pips - minus 300 pips
Net result only 100 pips on a 80% win ratio against 1150 pips on same number of trades with only a 50% win ratio
So in this case the lower win ratio method is a lot better
BUT ........... Is it ?? - lets look at the time taken to produce the results.
On the 80% win ratios - 100 trades are achieved ever 4 to 5 days - based on a 220 day trading year .
On the 50% win ratios - 100 trades take 4 months..
So after 1 year - the 80% win ratio produces net results of 4400 pips
With the 50% win ratio - after 1 year net result is only 300 trades and 3450 pips - so a lower result by 950 pips - so maybe less money - BUT....... - the high win ratio needs a lot more trades ( all costed in the net result) and also more time being spent every day - ie you would need to be a full time trader - whereas the 50% method only might need 15 - 60 mins a day.
You can then have another method with say just a 30% win ratio - based on tight stops of just 7 pips and targets of 20 to 25 pips and on 100 trades results would be
30 wins average 22 pips = 660 pips.
70 losses - at 7 pips - 490 pips
Net gain on a 30% win ratio - still 170 pips a week.
Personally - the one I favour - but i am a full time FX trader and very experienced is 75% win ratio average and average stop size across the board then is 5 pips and averages win target anything from 3 pips to 100 pips a trade based on time and other factors - say average 12 pip
Result on 100 trades in a week then
75 wins times 12 pip average = 900 pips
25 losses at average 5 pips = minus 125 pips
Net result - 900 - 125 = 775 pips
Now if i could make that many pips every week - i would be delighted - but I don't always take 100 trades over 5 days sometimes less than 70 trades and some weeks my average wins are only 8 pips - ie loads of 3 to 7 pips and not many over 30+ pips
Less experienced traders will always favour higher win ratios - but many will not hold on for their targets of say 30 or 50 pips - and so their results are not so good
The experienced commercial traders ( not using their own money) will say 30 -45% win ratios are fine ( well they wouldn't they if its their way) and they get bonuses on the good results and still get paid for just average results etc. Don't forget never believe anything you hear from the industry - as is like the enemy telling you their strategy in advance - they will instead lie and deceive to catch you out - after all - they want to win - and they want you to lose.
Conclusion
Look more at the bigger picture - not any component in isolation. Look also how you want to trade - how committed and skilled you expect to be - are you going to spend 10k hrs studying all chart movements - or are you just wanting to spend a couple of days a week and only want to take a few trades with no real pressure etc etc. Are you impulsive - have you got a strong mindset - is the the money you are using of not that great importance ? - Do you know over 80% of all retail traders never really make it - etc etc
There's no one answer - trading is rarely black or white - its full of grey
All the best
Regards
F
Hi F,
Thank you for the very detailed input. I had never thought of it the way you have put it. For you I see your system working as you said your full time trading. The system i have been looking and testing (still a few more months of testing) But I will be doing a longer time frame as I work full time. So hopefully will be finding entry's in the morning and then analysing chart patterns on the evening setting buy orders with SL/TP. Looking to do a 2/2.5:1 reward to Risk and any extra pips are always welcome.
Thank you for the very detailed input. I had never thought of it the way you have put it. For you I see your system working as you said your full time trading. The system i have been looking and testing (still a few more months of testing) But I will be doing a longer time frame as I work full time. So hopefully will be finding entry's in the morning and then analysing chart patterns on the evening setting buy orders with SL/TP. Looking to do a 2/2.5:1 reward to Risk and any extra pips are always welcome.
NVP
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I would be more comfortable trading one with lower success rate because the ones with higher rate tend to be over optimized and fit historical data but fail in real trading.
