Low Winning Percentage = more Robust Systems?
http://www.automated-trading-system.com/low-winning-percentage-more-robust-systems/
http://www.automated-trading-system.com/low-winning-percentage-more-robust-systems/
Dennis Gartman... GREAT Lesson In Trading
- Thread starter Scataphagos
- Start date
So a 10% win rate is surely the way to go in order to maximize profits? Any strategy that is predicated on a 10% or 20% win rate has the implicit ability to render max profitability???
Why not build a high win rate methodolgy that has implicit capacity for max profitability? Problem is most have not found out how to accomplish that. But, that is not to say it can’t be done. It is certainly better than other options tossed around in the trading world. Success starts with proper mindset for success, then testing for and developing winning skills, including the psychological ramifications to execute those skill under duress or stress. It is then that one becomes competent.
Besides a low win rate reeks of incompetence and just pure luck for the winning trades WHEN they do win.
While entries into a position, by nature, are difficult to always determine, in a precise timely manner (because of the uncertainties inherent in the markets) large unreasonable drawdowns are indicative again of incompetence and lack of a viable strategy with winning tactics that render winning entries and exits.
There exists such things as competence and skills in trading the markets that influences win rate or the entire thing is just a random game based on pure luck. So throw money at the markets anytime, in any way, and hope for the best. If it fails cut losses quickly until one gets lucky and hits the “motherload”. This is hogwash in my opinion but may be “modus operandi” for many traders.
Time for some definitions:
Skill...the the ability to do something successfully or efficiently.
Competence...ability to do something well; expertise.
Low win rate clearly states the lack of skill to pick and execute good entries and exits. And they indicate a lack of things of a tactical nature when one is off “their mark” so to speak.
The market is uncertain. Rules will not box it in, nor make it more certain. Rules can protect yourself from yourself when you make a mistake but all our rules will not change the market, one iota. The markets ebb and flow as bulls and bears push and shove. The greatest skill a trader can develop is to make proper judgement of the ebb and flow and then execute based on that. For me, saying “I have to get at least a 4:1 reward to risk” is nice but certainly not necessary for profitability. Furthermore, many times such foolishness renders a loss as opposed to a win. Traders can “hold on” to a stubborn rule for a 4:1 RR when the ebb and flow of the markets gives a 3:1 RR and they refuse to take it and the market turns against them totally wiping out the gain they had and they end up marking down another loser. Do that enough and they will BE a “loser”.
I operate on a bucket full of skills and things of a tactical nature, however, I am going to watch the pulse of the market and will adapt “on the fly” any thing of a tactical nature that I plan to implement or have implemented. I will change on a moments notice any stoploss..any profit target..any entry..any exit should the ebb and flow indicate I should do so. I cannot predict the ebb and flow as I cannot know all the variables that create such an ebb and flow. I can only “observe” it live and compare that to static PA patterns I hold in memory or draw on a chart along with dynamic PA patterns as they are unfolding AND then make the best informed decisions for the moment that I can make.
To declare the market has to give me a 6:1 RR is, at least to me, is the epitomy of foolishness. The market knows nothing of a traders dreams or desires. It is simply push and shove until one side wins and the other capitulates. Go with the winner!
A trader must develop this mindset. Love the battle (think of the floor traders of yesteryear)..the push and the shove..the challenge to judge the ebb and flow correctly, the challenge to develop and test strategies and tactics and to OVERALL, maintain the following points of view:
Maintaining the above attitudes has personally been extremely difficult for me. I was raised in a pessimistic environment much of the time leaning towards skepticism. Thus I developed habits that caused me to miss out on great opportunities. They did save my hide on other seemingly good opportuntities but overall such attitudes hindered my development. I have struggled hard to overcome my shortcomings and have no one to really blame but myself. I allowed them to develop.
So there. I choose to become a winner and will do whatever it takes (as long as it is morally right) to continue being one.
I once read a book: The One and Only Law of Winning by Bern Wheeler
There are many ways to win. There is only one law (rule of conduct) for winners.
Adios..for now
PS General Patton once said “Americans love a winner, they will not tolerate a loser”
You want to win? Never give in to tolerating losing. (My quote)
Look, it's pointless to keep debating with you guys because you're so disingenuous when you debate. This is the third time, by a third different person that you've all tried to put words in my mouth to make a strawman ... I NEVER SAID WIN RATIOS WEREN'T PART OF THE EQUATION. I very clearly said that win ratios weren't what mattered, what matters is the SIZE of the wins and losses, in aggregate, because that's where you get profit vs. loss. I also clearly said that I wasn't recommending low win ratios as a strategy ... I'm simply saying that sitting here arguing about win ratios as some kind of measuring stick for who is a better trader, or a more efficient trader, or a more profitable trader is BULL^%$# because win ratios are not a good metric to prove or insure profitability. I'm not going to say the same thing A FOURTH TIME ... so the thread will have to go on without me if someone tries to put the exact same words in my mouth yet again that you have.
You are guys are essentially making up a human being and making up an argument to put in their mouth to argue a point nobody is arguing. Why even use my posts ... just make up a quote and a person and quote them and leave me out of it if you want to go off on some random rant.
But they do matter! And they are a measuring stick! And it is best to have a high win rate! The size of the wins vs losses complement or are destructive based on the win rate. The times you win is way more important than the times you lose. The more times you win big the bigger your profits. The less times you win with a big profit the less $$$ you make. A high win rate with a small profit and big losses is destructive. So, develop a good strategy but one that also renders a high win rate. Or the risk of ruin dramatically increases.
But to say win rate doesn’t matter is misleading. It absolutely matters.
Anyway,...happy trading. Keep that win rate down now...just kidding.
The only thing that matters is how much freakin' money is in your account. How it gets there is not important.
Personally, I have never liked low win rate systems. Typically, when we talk low win rate, we are talking about trend following systems, eg range, MA, trendline, price breakouts, volatility breakouts, etc. Many of the best swing and longer term systems have used this type of logic.
Over long periods of time, they have tended to produce decent returns with win rates generally in the low 30 % range. They get chewed up in chop and bank huge profits on trend runs. Many CTA's have used them. In fact, their characteristics make them far more suitable for CTAs than individual traders. They require large accounts, both to survive the inevitable runs of losers and because they need to be traded across a large number of non-correlated markets.
For individual traders, low win rate systems poses several difficult challenges. As noted, you need a big account because you must use low leverage and you need to trade many markets. Otherwise you might churn along for years before making any money. The real problem however is the fact that if you miss or fail to take one or two trades, you invalidate all your backtesting. IOW a big percent of your profits will come from a very small number of trades. Traders have historically had trouble sticking with proven systems because they cannot handle the strings of losers. You get fed up, decide to inject your own judgment and just like that, you pass up the trade that would have made your year.
Personally, I have never liked low win rate systems. Typically, when we talk low win rate, we are talking about trend following systems, eg range, MA, trendline, price breakouts, volatility breakouts, etc. Many of the best swing and longer term systems have used this type of logic.
Over long periods of time, they have tended to produce decent returns with win rates generally in the low 30 % range. They get chewed up in chop and bank huge profits on trend runs. Many CTA's have used them. In fact, their characteristics make them far more suitable for CTAs than individual traders. They require large accounts, both to survive the inevitable runs of losers and because they need to be traded across a large number of non-correlated markets.
For individual traders, low win rate systems poses several difficult challenges. As noted, you need a big account because you must use low leverage and you need to trade many markets. Otherwise you might churn along for years before making any money. The real problem however is the fact that if you miss or fail to take one or two trades, you invalidate all your backtesting. IOW a big percent of your profits will come from a very small number of trades. Traders have historically had trouble sticking with proven systems because they cannot handle the strings of losers. You get fed up, decide to inject your own judgment and just like that, you pass up the trade that would have made your year.
Focusing on a high win rate is equally problematic. You can easily achieve a very high win rate. Buy every high over the previous bar's high and sell when you get one tick profit. You will probably have a 90+% win rate but be an overall loser because you are violating one of the basic rules, ie let your winners run.
The most common high win rate systems involve selling option premium. There were a couple of guys who produced decent records doing that, but one of them was named Madoff. There are ETFs that sell premium, there are advisors that do it. Returns generally are not that great because you are picking up pennies in front of a steamroller. If you have the skills to do really well at it, you probably could make a lot more just trading the underlying.
The most common high win rate systems involve selling option premium. There were a couple of guys who produced decent records doing that, but one of them was named Madoff. There are ETFs that sell premium, there are advisors that do it. Returns generally are not that great because you are picking up pennies in front of a steamroller. If you have the skills to do really well at it, you probably could make a lot more just trading the underlying.
For discretionary traders, the most important stat to know after drawdown is max adverse excursion. That is the amount of red ink a trade can absorb before the probabilities shift against you. It's probably the single most valuable thing you can discover via backtesting.
Daytraders can achieve very high win rates, but the achilles heel will always be the big loser. If you avoid the big losers, you can make good money as a trader. The first step to avoiding them is to know when a trade has gone sour. It sounds easy but when your money is on the line, it's one of the hardest things in life to do.
Daytraders can achieve very high win rates, but the achilles heel will always be the big loser. If you avoid the big losers, you can make good money as a trader. The first step to avoiding them is to know when a trade has gone sour. It sounds easy but when your money is on the line, it's one of the hardest things in life to do.
As a longer term trader I have found myself most vulnerable the first week or two of placing trades.
My experience has shown most often the majority of my trades are placed a couple of days too early, entries & exits.
I was out of the market at the beginning of the year until early April and so far since have placed 40 buy trades not far below totalling $1M.
Win rate 55%, ratio of max winners to max losers in dollars 310%, Avg winners to avg losers 236%
Drawdown I dont know, don't have that statistic recorded, but quite low I would think as luckily, one of my very first trades has continued to rise from day one and now up 32%.
But by and large, the nature of the market, volatility and my discretionary style means there is no constant result even though I have a constant methodology.
End of this coming week I will post the overall results in my journal. Being a commodity trader the outlook appears to be very positive short term ahead so am expecting an improvement on these results.
Currently holding 16 positions with maybe a couple more to add.
Never bothered previously on keeping statistics.
My experience has shown most often the majority of my trades are placed a couple of days too early, entries & exits.
I was out of the market at the beginning of the year until early April and so far since have placed 40 buy trades not far below totalling $1M.
Win rate 55%, ratio of max winners to max losers in dollars 310%, Avg winners to avg losers 236%
Drawdown I dont know, don't have that statistic recorded, but quite low I would think as luckily, one of my very first trades has continued to rise from day one and now up 32%.
But by and large, the nature of the market, volatility and my discretionary style means there is no constant result even though I have a constant methodology.
End of this coming week I will post the overall results in my journal. Being a commodity trader the outlook appears to be very positive short term ahead so am expecting an improvement on these results.
Currently holding 16 positions with maybe a couple more to add.
Never bothered previously on keeping statistics.
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Absolutely the times you win. Not how many times you win.