Again you make presumptions that fit your logic. What if the system would have 90% winning trades and never a drawdown of more than 8% in the 10% losing trades? Profits would be 3 digits % return. It is just a presumption like yours. Who says that the system I speak about fails badly? You say, I don't. Trading a 90% succes system is not hard to trade at all psychological. 55% are hard to trade.
I base my opinions having traded both types. Do you think it's a coincidence that most of the people who have been around longer trade the 55% rather than the 90%? You seem to think this is somehow personal and I don't understand that. How long have you traded for? Again, nothing personal but it is relevant as the 90% systems tends to fail in extreme market conditions but thrive under normalcy, and for the past few years we've had relative normalcy.
It is not that hard to design a 90% system or one close to that, yet few of us would trade it. Just pick some entry criterion and then take profits after one tick. Have a huge stop. It's a bit like selling option premium. Sooner or later the odds catch up to you. Your comment about how psychologically easy it is to trade one sytem versus another points up why most system traders fail. The whole point of having a system is to take the psychological component out of it. It shouldn't matter if it is easy ro hard to pull the trigger because that is not a component of the system. Yet we are all humna, unless we have a trading bot. so we tend to ignore or even fade the system's signals at the worst possible time. Really, an argument could be made that ease of trading would negatively correlate with system robustness. If it was easy, everyone would be able to do it.
AAAintheBeltway, that's exactly right. Although I'd say there's always a psychological component to systematic trading, it doesn't necessarily mean one would interfere always but the emotions derivative of the equity curve are always present. 90% systems are difficult since the big losers are always lurking around the corner - a trade series of $100 $100 $100 -$500 is harder to stomach than $200 -$200 -$200 $200 -$200 (at least for me it is).
d08/AAA: I think Mtrader's viewpoint is that it is possible to reach 90% winrate AND keep the 10% losing trades small. I'd say that's the holy-grail, and I would be pleased if Mtrader was showing an example of that.
I don't think it's possible. Also, he mentioned a Sharpe of 1.03 for the 90% example, that's definitely not even close to the holy grail diagonal equity curve. If someone can do 90% WR with avg. winning trade equal to avg. losing trade with a large number of trades, I hope they invite me to party on their yacht.
90% winning systems that are profitable over the long-term do not exist...any such phenomenon would be arbitraged away
I understand. The thing is though, you generally have to make a choice. Fewer but larger losers or more but smaller. If you try to make your bigger losers into smaller losers, you have to give up something somewhere else, and that place is winning percentage. I think the key stat of any system is drawdown. For me, I don't really care if my losses are larger and thus rarer or smaller and more frequent. What puts pressure on a trader is drawdown.
I agree that drawdown is a key element, however historical max drawdown isn't worth much ... I think smoothness of the equity curve (more or less represented by the Sharpe ratio) and avg/stdev of max.DD through MonteCarlo simulations are much more indicative than historical max drawdown.