Poll: What is your Win Rate

[oraclewizard77]

I agree that a system with under 10% win rate has zero edge and is not worth trading since not only are you losing money on trades, but you are losing money on commissions making the hurdle to high.

The % of a good trend following system should at least reflect the % of time a market is trending. The market trends more than 10% of the time so instead of trend following, you are looking for some super trend if your win % is lower than 10%.

Also, in the real world, a 90% win rate system has a 90% chance of ruin. The reason being most 90% win rate systems stops are the amount of money in the account.

This is of course different if you have an actual edge for example, you are a large Hedge fund with co-located servers that pays for a 1 second look at incoming orders and can then legally front run them so that even a 1 cent movement produces profit due to large volume discount on order flow.

 

[neke]

Quote from N54_Fan:

OK,...here is a MC Sim for 2 different systems. BOTH systems will have a 0.4R Expectancy and assume a starting capital of $100,000. The first system has a win rate of 10% and the second 90%. These are the ONLY differences in the systems. Both MC simulations are done and posted below. Both simulations are of 200 trades simulated 10,000 times!!! This is 2,000,000 trades.

Both MC sim are done using ONLY 0.1% capital at risk per trade. Notice that this is considered EXTREMELY conservative by most standards as most would say 0.5-2% risk is typical for trading. The ONLY reason I have included this 0.1% risk MC Sim is to show that at 0.1% capital at risk you could still have significant draw downs and wide possibilities of outcomes in trading with a 10% system. This 0.1% was also the amount of risk that intradaybill mentioned in a prior post as if that is somehow going to prevent draw down. It does not. It only reduces the rate of bleed and possible ruin. Realize also that everyone has a different definition of ruin. For me 20-25% draw down I would consider ruin. For others this number may be 50% or 100%. Everyone has to decide for themselves what that number is.

Notice that the 10% system has a PEAK of $37,000 GAIN and nearly -$12,000 LOSS. Also notice that the longest string of losers is 33!!!! The longest string of winners is 2!! NOTICE THAT AVERAGE WIN WAS $9500 OVER THE ENTIRE SIMULATION!!!! THIS IS IDENTICAL TO THE AVERAGE WIN FOR THE 90% SYSTEM.

(sorry about the ALL CAPS,..I can not figure out how to bold something here..LOL)

Compare that to the 90% system. Peak win is certainly lower but so is the peak draw down. This system has a max Draw down of -$370. Also notice that ALL of the simulations produced a NET profit even the MINIMUM profit was $7,000 (7%). Point is that the 90% system has less draw down and ZERO possibility of ruin and 100% chance of a winning year.

The obvious question is now for the 90% system with ZERO chance of a losing year am I risking too little per trade? I would say the answer is YES. You could do MUCH better with this system by only changing the amount risked per trade. Lets see what happens with 1% at risk,....to be continued below.

First pic is 10% system at 0.1% risk.

Thanks for your MC research. Looks like a good software to have.

However, there are a couple of points that make the result questionable
1) You are assuming a constant percentage on the original $100K. That is how you could get a loss of more than $100K. Try doing the simulation with a percentage on current balance (after the last trade).
2) You are comparing two vastly different expectancy trades. Your calculation of expectancy (using 0.4R example) is different than I would for the purpose of comparison. The 10% system has an expectancy (total gains from positive trades / total losses from negative trades) of 1300/900 or just 1.44, while the 90% system has expectancy of 5.0 (9 * 55.56 / 100) from your simulation. To me this is the BIG difference. You have already assumed upfront that the 90% is better, and brought the data to support it. For me, if it is to be apples to apples, I would assume the same ratio of total gains/total losses, and examine the distribution. Your example fixed the loss at $100 a trade for both systems, and proceeded to derive the gain necessary to generate the same returns. Suppose you do the opposite: fix the gain per trade at $1000 or whatever figure you would like, and determine the loss per trade given the win rate to generate $400 per 10 trades (for the 10% system the loss would be $66.67 per trade, while it would be $8600 for the 90% system - in both cases the net would be $400 after ten trades), and chart the graphs. You will see how terrible the 90% system chart suddenly looks.

 

[neke]

Quote from neke:

Thanks for your MC research. Looks like a good software to have.

However, there are a couple of points that make the result questionable
1) You are assuming a constant percentage on the original $100K. That is how you could get a loss of more than $100K. Try doing the simulation with a percentage on current balance (after the last trade).
2) You are comparing two vastly different expectancy trades. Your calculation of expectancy (using 0.4R example) is different than I would for the purpose of comparison. The 10% system has an expectancy (total gains from positive trades / total losses from negative trades) of 1300/900 or just 1.44, while the 90% system has expectancy of 5.0 (9 * 55.56 / 100) from your simulation. To me this is the BIG difference. You have already assumed upfront that the 90% is better, and brought the data to support it. For me, if it is to be apples to apples, I would assume the same ratio of total gains/total losses, and examine the distribution. Your example fixed the loss at $100 a trade for both systems, and proceeded to derive the gain necessary to generate the same returns. Suppose you do the opposite: fix the gain per trade at $1000 or whatever figure you would like, and determine the loss per trade given the win rate to generate $400 per 10 trades (for the 10% system the loss would be $66.67 per trade, while it would be $8600 for the 90% system - in both cases the net would be $400 after ten trades), and chart the graphs. You will see how terrible the 90% system chart suddenly looks.

Just a bit of correction in terms. I would be looking for equal "profit factor" (ratio of total gains to losses) - which to me is the edge - to have a comparison.

 

[the1]

Well said by Eckhardt. Some guy -- I forget who it was -- posted his trading results with a win rate of 42% but he was up 50%. That's a pure sign of cutting your losers fast and letting your winners run. Easier said than done.

Quote from Businessman:

Remember the lower the better!

Although trading below a win rate of 35% is a very though way to trade.

"The success rate of trades is the least important performance statistic and may even be inversely related to performance." - William Eckhardt

 

[N54_Fan]

Quote from neke:

Thanks for your MC research. Looks like a good software to have.

However, there are a couple of points that make the result questionable
1) You are assuming a constant percentage on the original $100K. That is how you could get a loss of more than $100K. Try doing the simulation with a percentage on current balance (after the last trade).
2) You are comparing two vastly different expectancy trades. Your calculation of expectancy (using 0.4R example) is different than I would for the purpose of comparison. The 10% system has an expectancy (total gains from positive trades / total losses from negative trades) of 1300/900 or just 1.44, while the 90% system has expectancy of 5.0 (9 * 55.56 / 100) from your simulation. To me this is the BIG difference. You have already assumed upfront that the 90% is better, and brought the data to support it. For me, if it is to be apples to apples, I would assume the same ratio of total gains/total losses, and examine the distribution. Your example fixed the loss at $100 a trade for both systems, and proceeded to derive the gain necessary to generate the same returns. Suppose you do the opposite: fix the gain per trade at $1000 or whatever figure you would like, and determine the loss per trade given the win rate to generate $400 per 10 trades (for the 10% system the loss would be $66.67 per trade, while it would be $8600 for the 90% system - in both cases the net would be $400 after ten trades), and chart the graphs. You will see how terrible the 90% system chart suddenly looks.

YOU do NOT understand the formula for expectancy ,...

Expectancy = (%winning trades * Average win) - (%losing trades * average loss)

In these cases:

10% system expectancy = (.1*13R) - (0.9 * 1R) = 1.3-.9 = 0.4R

90% system expectancy = (0.9*.556R) - (.1 * 1R) = .5-.1 = 0.4R

APPLES TO APPLES Expectancy... Notice how even in the formula for expectancy it takes into account the win rate!!!

Also, the expectancy is calculated in the MC sim posted. Notice that the part in green that says "Theoretical Expectancy" is .4R of the risk listed above in yellow.

Google "Expectancy formula" if you don't believe me. There is no ratio in this equation!

BTW, I agree with Eckhardt that it is one of the lesser important things in a system. However it is FAR from irrelevant. Those of you who have never done this examination or calculated these formulas should look at your systems more closely.

 

[Zr1Trader]

Quote from oraclewizard77:

but you are losing money on commissions making the hurdle to high.

What if the avg winning trade is $44000 and avg loser is $269 with a 2.4% winrate? Cut loss, hold winner

You can have 50 consecutive losses and still be fine if you just hold the winners.

 

[SnakeEYE]

Quote from Zr1Trader:

What if the avg winning trade is $44000 and avg loser is $269 with a 2.4% winrate? Cut loss, hold winner

You can have 50 consecutive losses and still be fine if you just hold the winners.

aaahaha..

with this kind of ratio ave winning trade could be 10 times higher!

 

[SteveNYC]

Quote from Zr1Trader:

FWIW, my highest profit factor trend following methods have 2%-6% win rates.

Typically, trendfollowing=low winrate, mean reversion=high winrate

2%-6%!!!!!!!

That under 10%!

Which means that you have less than one winner for every ten trades.

How does your mind deal with loss after loss after loss....

 

[Zr1Trader]

Quote from SteveNYC:

2%-6%!!!!!!!

That under 10%!

Which means that you have less than one winner for every ten trades.

How does your mind deal with loss after loss after loss....

Most can't do it...

 

[cornix]

Slightly below 60%. Also typical profitable trade is larger than losing trade.