Many traders obsess over being right as often as possible. They want to trade with high win rate techniques and see having a low win rate as failure. By itself, having a high win rate is not a bad thing at all but what I often come across is traders trying to trade with high win rates above all costs.
What traders should actually obsess about is profitability. You don’t have to have a high win rate to be very profitable. I’ll give you an example. A trader submitted some test results to me that he had accumulated over several years of data. He looked at various techniques for profit taking, some of which had solid win rates, others were lower. The technique with the highest win rate yielded 26,000 points over the test period (64% strike rate). Now this information by itself sounds impressive but at the other end of the spectrum was a win rate of 38% which delivered 34,000 pips.
So the much lower win rate gave a much better result over years worth of data. Interestingly, the trader couldn’t bring himself to actually trade the setup that gave those highest points. He stated that he simply hadn’t developed his psychological side enough yet to be able to handle such a low win rate, despite knowing that it gave the most profitable result.
He opted for the mid ground which was a 58% average win rate and 29,000 points. Is it wrong of him to do this? Well if you trade a system that you’re not comfortable with, you’re likely to make mistakes with it so he is probably right not going that far. However it is something that he can work on for the future.
Another trader I know averages a strike rate of just 39% and yet is very profitable. Risk versus reward is more important than win rate itself but of course we as humans have to be able to cope with lower win rates. I guess that’s where the work comes in – learning not to get in the way of our own potential profitability….
Moving over to the currencies, the USDJPY is currently sitting on a precipice. The trendline I have shown on the chart is being constantly tested. Either price is going to have a bounce or we see a break to the downside. A strong close below and we could see another run for that June low….
Have a great week
Charlie Burton, EzeeTrader
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