I saw a lot of systems that gave you win/loss ratio about 4:6. Although they were quite profitable, for a newbie, the psychological impact of watching so many losses was quite big. Is it better for a newbie to use a system with high win/loss ratio first?
In my first year I was stroking my ego with 65-70% winners. Problem was, I'd book a winner - ANY winner - even 5 bucks, just to keep the winning percentage high and book a "winning trade". For every 5.00 winner, though, I had 20.00 losers. Screw the win:loss ratios; keep your gain:loss ratios in check and you'll suceed.
just had to chime in with some agreement, this is a big point for me in trading. Win/Loss is not why you are in this business. When you tell your wife/girlfriend how well you have been trading, do you think it matters what your win/loss ratio is ? Hell no, what matters is how much cash you have settled in your account. Are you in this for masturbation purposes or are you in this to make money ? Trading is entertaining, it has a gambling thrill involved. Winning feels good and feeds the gamber instinct, which can then lead to a complete blowout. It has happened to me, though luckily I didn't have much money when it happened so it only cost me about 6 grand. Still to this day I wish I had that 6 grand in my checking account.
I have a method that gives me 85% winners and about 50K a year. I trade this along other style(s.) Outside of the money, the one thing that it resonates mostly with me is the theory that the markets are efficient is CRAP. nitro
I usually keep a record with all my trades and put them together based on performance and other factors. My % profitable is 23.6% on bad days but my Risk/Reward is 9.7. I would take a scratch or 2-3 tick loss. Also, take the major part of the swing of the move. It works great because I'm a very good loser... When I have major mojo I have a 100% profitable day with a 1000000000+:0 RRR... But when I traded as system trader for a week. Total % profitability was 48% and RRR was 3.3. I am a intraday trend-follower. No trend... no trade... That's why I have a high RRR. If you're a scalper like Nitro, it's a different story. Honestly, it's a depends more on what kind of style you would like to trade under. More profit taking = More frequency and Profitability. If you have patience and discipline to follow (it's to follow... every trade needs discipline. If you scalp, you are tempted to keep a winning trader.) = Go for High RRR with reasonable % Profitability.
There's something to be said for a system that takes regular small losses. I find that if I've had a straight run of more than a handful of wins - I don't take the subsequent (inevitable) loss as quickly as I should. Sounds silly but I need to keep practicing taking small losses - otherwise I'll end up taking bigger ones.
Win Rate = wins/total trades Avg. W/L Ratio = avg win/avg loss P/L Ratio (ABS)Sum of wins/(ABS)sum of losses Michael B.