09 Jun The Problem with a High Win Percentage
The Problem with a High Win Percentage
June 9, 2021
I’ve always loved The Hornet.
It was the first real robot I created.
Yes, there was one before that, but that was a clueless mess.
The Hornet was the first automated strategy that I tested extensively with a legitimate plan.
And it was built around a principle that really made me love it.
A high win percentage.
If you win a lot of tennis matches, you’re going to be one of the best.
And if you win a lot of trades you’re going to be rich.
You can’t go broke taking a profit, right?
That was the principle that guided the Hornet. Find a system that wins a lot and constantly puts money into my account.
And revel in the winning streaks.
After over 2,500 hours of testing, I’d found what I was looking for.
The USDJPY on the 15-minute chart using the Hornet methodology (getting in on a pullback and going for a small win) was the best backtest I’d ever seen.
This was what my research was showing before I first took the Hornet live. Look at that Equity Curve:
And the win percentage? A wonderful 77%.
Did it work?
Trading on Tradestation using leverage no longer available in the U.S., it made 100% in a calendar year (plus a day).
My life was set. And I felt like this was a legitimate tool to offer other traders, too.
But then the black swans came to visit.
First, regulators took away my leverage. Then Tradestation took away my platform (it stopped offering Forex trading).
And then the real problem started. What was the problem?
The win percentage.
When I switched brokers and lost leverage, the execution of my trades had to stay really good. If the system produced a 6-pip win, I needed 6 pips of profit in my account.
And I stopped getting that. Or at least, I didn’t get it all the time.
Plus, some trades taken and exited around 5 pm Eastern had spreads so big that some winners turned into losers.
That’s the problem with systems with high win percentages.
To get those high win percentages, you need to have a small target and a big stop. Which is fine — as long as the win rate remains high.
But if a 75% win rate drops to 65%, the entire integrity of the system takes a massive hit. If you win a lot, you better keep winning a lot forever.
There’s no real margin for error or for the market to change its personality.
The bottom line: systems that win all the time can be fragile.
And that’s what happened to my beloved Hornet.
Granted, it is still producing profit on paper.
Here’s what it looks like in the past few years.
But it’s not the juggernaut it once was. And because of execution, these results may or may not be what we see in real life. A few winners that are actually losers can turn this report on its head.
If you trade a high win percentage system in the U.S. and the win percentage is compromised, then it’s hard to have enough trust to trade that system.
That’s the big danger of using systems that are based on winning all the time.
[Of course, if you have a good broker and non-U.S. leverage amounts, that’s a totally different story.]
So, can anything be done?
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