02 Jun Solving the High Win Percentage Problem
Solving the High Win Percentage Problem
June 2, 2023
Subscribe to my YouTube Channel HERE.
Systems that use “bad” reward to risk ratios are great.
There’s no reason a trader should ignore them.
In fact, these systems might be the best way for many traders to trade. Why?
Bad reward to risk systems almost always have a very high win rate.
And high win rates keep traders in the game. And produce fantastic Equity Curves.
So, what’s the problem?
One problem is execution. If your broker doesn’t have tight spreads, then a small winner can turn into a non-winner. That’s not good. If we’re going for small wins, we need as much of that profit as possible.
The other problem is the stoploss.
When one loser takes out several winning trades, that’s very hard to deal with emotionally.
When a handful of big stopouts take out a ton of winning trades, that’s hard to deal with mathematically.
It can lead to huge drawdowns.
If the win rate doesn’t stay high in the instrument you’re trading, you can find yourself in a hole.
Execution and a dwindling win percentage can really put a fly in the ointment.
But there’s a way around that.
It’s simple yet often ignored.
And the solution is this:
Trade them all.
Trade a bunch of instruments at the same time.
Yes, maybe the execution is poor from time to time. It probably won’t be poor for all of the instruments all of the time.
And, yes, maybe one instrument’s win rate drops for a while. If so, all the others can keep winning and make up for that.
And, lastly, maybe these factors will combine into making live results not as good as the backtest.
High win rate systems win so much that it may not matter if the results in real life aren’t identical to the testing.
For example, what if the backtest shows a 125% gain in two years and you only get 100%. Does that mean you sulk and throw the whole thing out?
Of course not. The lower results would cause most traders to throw a party.
Take a look at this.
Using Portfolio Architect, here’s a portfolio of 13 Forex currency pairs trading 1 lot using the original Heron 15-minute settings from 2020-2023 on a hypothetical $15k account.
In 3.5 years, a hypothetical $15k account turns into $135,000. What if it only turned into $100k? Is that okay? Is a 500% return acceptable?
And here’s the hypothetical Curve:
And Annual Returns:
Again, even if that didn’t completely come true, would a portion of that be okay?
If so, then bad risk to reward trading–and its 75% win rate–might be something to consider putting in your arsenal.
Talk to you soon.
It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples presented on these sites are for educational purposes only. These set-ups are not solicitations of any order to buy or sell. The authors, the publisher, and all affiliates assume no responsibility for your trading results. There is a high degree of risk in trading.
HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.