27 Feb The Danger of Winning Every Trade
The Danger of Winning Every Trade
Feb. 27, 2019
Let’s be honest.
We want to win every trade.
We can say that we don’t care, that money management is the real key to trading success.
Or we can say that we don’t mind losing because our risk to reward ratio is a whopping 5:1
We can say all that.
But nobody likes losing. Not…one…bit.
Which is why we click on cheesy ads promising huge win percentages and is why we complain about losing trades even though we win about 70% of the time.
If we click the button or monitor our robots, we want to win every time.
And the thing is: such systems exist.
There are perfectly legitimate systems that win every series of trades. Not every trade, every series of trades.
For example, you go Long when something is on sale, buy more when it drops more, and then take it all out for profit when the entire position is profitable. I made $50,000 in four months doing this (recklessly) back in 2010.
But there are problems to trading this way.
First, let’s give the details on a system we’ve talked about before that wins every series of trades:
- System: The Fair Value System
- Philosophy Behind It: Buy or Sell when price reaches an extreme, and then wait for price to reach fair value in profit (without using a stoploss)
- Need Special Indicator? No.
- Chart: Daily
- Instrument: @AD (Australian Dollar Futures Contract)
- Long or Short? Long Only
- Long Entry: 1) Price must be close at least once below the Bollinger Bands™ (length 130); 2) Price must close up inside the bands; 3) Enter at Open of next bar; 4) Take up to 3 positions max if set-up repeats itself
- Hypothetical Portfolio Profit: $39,516
- Hypothetical Portfolio Max Drawdown Percent: -$19.290
- Stop Loss: none
- Take Profit: $1,250
- Trade size: 1 contract
- Hypothetical account size: $20,000
- Test Period: 2004-2019
- Number of Trades: 51
- Percent Profitable: 98.04%
Here is the Tradestation Report:
So what’s the problem? It has over a 98% win rate and makes a nice amount of money.
The problem, of course, is the stoploss. Or lack of one.
Without a stoploss, the drawdown can last all the way to the scene of the crash. Or all the way to an account with a zero balance.
Besides that big problem, there’s also the time problem. When there’s no stop to end it, trades can go on and on and on.
This is exactly what’s happening right now on our @AD chart. It took an initial trade back in July 2018 and then took two more. It’s now at its maximum.
And the market has not cooperated:
That’s seven months of just watching a losing series of trades. How fun.
Odds are, this trade will work out like all the other trades worked out. But if it lasts several more months, the big questions are:
Was it worth it? Is this really the style of trading you like?
It’s great to win all the time.
But there are dangers we have to take on to get a very high win percentage.
In our next email, we’ll at a portfolio of no stop-loss robots and see how that looks.
Talk to you soon.
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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.