Do daytraders profit everyday? Or are they like me: one huge win one day, 10 losses in a row after?

[cartmm]

Humans have a tendency to want to be right. It makes them feel good and gives them something to brag about at parties. The last thing a trader with a 10% win rate wants to do is talk about his last 9 losses.

But a 10% win rate doesn’t necessarily mean a bad strategy, indeed it could be optimal for the market and strategy where its employed.

Humans will default to searching out a 100% win rate. When they can’t find 100%, they will drop their requirement to 90%, 80%, 70%, but the bias is to maximize it. And if they see a low one of 10%, 20% or 30%, the inclination is to make it ‘better’.

We don’t know OP’s exact markets(s)/strategy(ies) so its hard to judge.

What is true is that both fundamental and technical analysis have serious flaws. I guess OP knows this extremely well. As an example, maybe Trader X is shorting hyped-up stocks that are fundamentally dire and going to go bankrupt. Trader X will keep shorting and get stopped-out 9 times, and he knows each time his entries have been terrible. But then with trade number 10 it hits and he makes it all back and more. Like Ironchef says, expectancy is paramount.

But with a 10% win rate psychology comes in to play much more in order to ignore the losing trades (and the criticism at parties). Xela makes a great point that you need to be psychologically strong enough not only to handle to ongoing drawdown but also the inevitable questions to yourself over the soundness of the entire system.

Risk management together with psychology are surely his best tools. With those in place, who can say that OP’s 10% win rate is not ideal for how he wants to trade.

 

[schweiz]

With those in place, who can say that OP’s 10% win rate is not ideal for how he wants to trade.

If you are wrong 90% of the time in your trades, you will never make money as the 90% rate indicates you have no clue about trading. The lower the win rate the more explosive the rare good one should be to cover all the losses and additionally make money.

Following your logic even a 1% win rate can be very good.
Mathematically everything is possible. If I have 99 losing trades for a total loss of $100,000, all I need is 1 trade that makes at least $100,000. Mathematically correct but unrealistic. If I am too stupid to make more then 10% winning trades, how can I then be smart enough to make killings in the profitable ones? If you miss the good entries all the time , you will miss the good exits too if you by accident got in a profitable trade.

 

[jinxu]

If you are wrong 90% of the time in your trades, you will never make money as the 90% rate indicates you have no clue about trading. The lower the win rate the more explosive the rare good one should be to cover all the losses and additionally make money.

Following your logic even a 1% win rate can be very good.
Mathematically everything is possible. If I have 99 losing trades for a total loss of $100,000, all I need is 1 trade that makes at least $100,000. Mathematically correct but unrealistic. If I am too stupid to make more then 10% winning trades, how can I then be smart enough to make killings in the profitable ones? If you miss the good entries all the time , you will miss the good exits too if you by accident got in a profitable trade.

That actually can lead into a profitable strategy by reversing the entries signals.

It's the trading strategy with 50% success rate that are dangerous. One cannot tell if it's luck or skill. However as delusional as many traders are they want to believe it's skill when it works and it's just bad luck when it didn't. Just need better risk management is the to go motto.

 

[qxr1011]

What is more important than win rate is positive expectancy.

One has to be very careful with that term and its meanings

Here is an excerpt from one of the past translated discussions on this subject:

"More detailed about the expectancy ...

So, a few theses:

1. For me, a system with a positive expectation of profitability, where the term "expectancy" is applied in the strict sense of the word, must not have customizable parameters.

2. The system does not need customizable parameters only if it knows exactly the future density of distribution of the values of the time series at which trade decisions are made. As a rule, this is the price, although there may be other time series.

3. I do not think that an accurate knowledge of the future distribution density is possible in principle.

From the above theses it follows that the use of the term "expectancy" in trading is completely unjustified. The selective average - yes, but the expectation - categorically not.

In my humble opinion, the entrance to trades in periods between the next optimizations of the parameters for a system that has a "positive expectancy" is based solely on the belief that the future statistical characteristics of the time series of prices will correspond to the previous characteristics on which the current values of the system parameters.

And taking into account the fact that all our systems work on unsteady stochastic series, this belief is not fully justified. Although I understand perfectly well that in something you have to believe , otherwise there is no point in trading. You just need to understand that this is only faith, not knowledge.

To those who disagree with me, please write a formula by which you can calculate the expectation of the future results of the trading system, provided that it (the system) gives trading signals based on the dynamics of some time series (say, the logarithm of the price) for which the distribution density of increments is non-stationary in time. If you do this, I'll take my words back, sincerely thank you, and will use this formula / algorithm ..

Just give me a model in which the logarithmic increments are stationary. Of course, this model should describe the entire sample. And there should not be discarded bars ...
Solving that task will probably win Nobel Prize (although they do not give it in math).

Here is from another user:

"To estimate the expectation, we need to specify a probability space, for time series - it includes time and by default we should consider either integrals at infinity, or for discrete values, the average over the sum, with the sample length tending to infinity.

Well, let us take some system built for deutsche mark. Only for the last century the brand twice passed periods of hyperinflation and twice simply disappeared (post-war exchange and the introduction of the euro). And the rules of market valuation of its value have changed many times.

Same story with stocks. Companies arise, and in their development they can either go through absorption, or through liquidation and bankruptcy. In this case, we do not know in advance the time for the onset of these events, i.e. we can not even limit the integral at infinity to a certain time interval. So really it can only be a selective mean and an estimate of its magnitude in some limited time window in the future. Just the word "expectation" somehow got accustomed, it sounds "scientific" and most importantly sounds reliably, but strictly speaking it does not apply to the subject."

http://www.howtotrade.ru/phorum/read.php?2,264170,264170#msg-264170

 

[schweiz]

That actually can lead into a profitable strategy by reversing the entries signals.

That's a wrong conclusion.
It can but probably will not. You have to keep in mind your risk management. So all depends where your stops are. You can get stopped out in both ways and still miss any move at all. If your entries are so bad they you get always stopped out, you will miss all trades. And even reversing will not help you.

For me a good entry is the most important thing in trading:

• you almost never get stopped out.
• even while being wrong you might get out before any real harm is done.
• a good entry buys you time as you are in the most comfortable position as possible because you will start with a positive open P/L which reduces stress and the risk of doing something stupid under pressure (like not following your rules).

 

[jinxu]

That's a wrong conclusion.
It can but probably will not. You have to keep in mind your risk management. So all depends where your stops are. You can get stopped out in both ways and still miss any move at all. If your entries are so bad they you get always stopped out, you will miss all trades. And even reversing will not help you.

For me a good entry is the most important thing in trading:

• you almost never get stopped out.
• even while being wrong you might get out before any real harm is done.
• a good entry buys you time as you are in the most comfortable position as possible because you will start with a positive open P/L which reduces stress and the risk of doing something stupid under pressure (like not following your rules).

I know. I just didn't want to give too much away. Traders here may start to get a clue. Bad for business.

 

[prc117f]

no, I have plenty of losses. even multiple losses during the day as well. the trick is to have more wins then losses. I will cut a trade quick and take a loss if I see a better opportunity.

Remember the end game is to win more than what you lose. losses are just the cost of doing business and you need to learn to embrace the losses if you want to make money.

Now if all you have are losses and no wins than thats messed up.

 

[prc117f]

So in a given week, you might lose money 3 of the 5 days if you do Nasdaq?

The number of losses dont matter.

What matters is the bottom end. are you making money doing this or losing money?

if all you do is lose money then that is the problem.

 

[schweiz]

Remember the end game is to win more than what you lose.

For me the end game is to have no losses at all. Till that day I will work as hard as I can to get as close as possible to my goal.
I hate losses, but I know I will always have some. But I am motivated to get ride of all my losses. I only want profits. This motivation helped me reduce the lost amount in $ by over 2/3. Number of losses is less important then the total lost amount.
I am stubborn and never give up. I sometimes go extremely far in this "fight".

 

[snowman80]

mental process of forming an ‘expectancy’ in trading or in any other field is not an attempt to say what will happen, it’s an attempt to say what may or may not happen with certain probabilities (very often intuitive) attached to each possible outcome.

in trading, i take ‘positive expectancy’ to mean that a particular approach based on preponderance of empirical evidence, if continued into the future will have a high chance of producing positive retun.