The Problem With High-Percentage Systems

The Problem With High-Percentage Systems

Nov. 22, 2023

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In our last Newsletter, we looked at how to get out of slumps.

Or trade in a terribly twitchy year.

And a possible solution was using a high win-rate system.

Even when a high-percentage system loses, it’s easier to continue on because winning is probably just around the corner.

Going through a drawdown with a trend following system with a 38% win rate can be very tough proposition.

The problem, though, is that to get a high win rate system, we need a big stop.

And a big stop can be horrifying.

One loss can erase a handful of wins. And multiple portfolio losses can wipe out several handfuls of winning trades.

So, is there a way to keep a slump-busting high win-percentage but not suffer the heartbreak of massive stopouts?

Sure.

We could decrease the stop.

In today’s example, we’ll cut the stoploss in half. On my Performance Page, the Hornet portfolio uses a 100-pip stop. We’ll try a 50-pip stop instead.

And, as you know, this hypothetical portfolio has 9 currency pairs in it. (Note: my live Hornet account only has 8. I don’t trade the EURAUD.)

How would a smaller stop have done so far in twitchy 2023?

After a tumultuous start, Portfolio Architect shows it would have hypothetically done better than the 100-pip stop portfolio.

And it would’ve maintained a win rate over 65%.

It seems that, at least this year, having a big stop isn’t as necessary. If if a trade going to win in 2023, it’ll win.

It apparently doesn’t need a lot of wiggle room.

Or does it?

In our next Newsletter, we’ll do something I actually haven’t done before.

I’m going to use a massive stoploss.

Talk to you soon.

 

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Disclaimer:
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.