70% Win Rate, but struggling to break even...

mikeeg

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Hi Everyone, I'm in need of some help with my trading strategy, just wondered whether any of you would be kind enough to help me try and improve my current strategy.

Ive demo'd and subsequently gone live with a system of mine which works pretty well. I've been trading FOREX and my success rate is 70%. What i mean by this is that I've reviewed every single trade made for the past 3months and this is the % of trades I can make a profit on.

However, the wins are fairly small (like 10-15pips max), whilst my losses are bigger (I use a S/L determined by first total capital risk (nothing more than 2% of my total capital) and then by previous swing high/low on charts - depending on currency pair this is approx. 30Pips).

The upshot of all of this is that i have a half-decent system which wins more than it loses, but ultimately struggles to break-even on a weekly/monthly basis. Some weeks I'm up, some weeks I'm down. N.B. I'm down overall (albeit a nominal amount).

Would be great if someone experienced could point out what I could do to change the system. Ideas I have thought of so far are tightening the S/L but then I fear that would reduce the % winners, so I'm reluctant to do that as I need to allow for some modest drawdown during a trade.

Sorry, I know this is a really long question to read, but would be great if someone could help us out!

Cheers,
Mikey
 
Hi Everyone, I'm in need of some help with my trading strategy, just wondered whether any of you would be kind enough to help me try and improve my current strategy.

Ive demo'd and subsequently gone live with a system of mine which works pretty well. I've been trading FOREX and my success rate is 70%. What i mean by this is that I've reviewed every single trade made for the past 3months and this is the % of trades I can make a profit on.

However, the wins are fairly small (like 10-15pips max), whilst my losses are bigger (I use a S/L determined by first total capital risk (nothing more than 2% of my total capital) and then by previous swing high/low on charts - depending on currency pair this is approx. 30Pips).

The upshot of all of this is that i have a half-decent system which wins more than it loses, but ultimately struggles to break-even on a weekly/monthly basis. Some weeks I'm up, some weeks I'm down. N.B. I'm down overall (albeit a nominal amount).

Would be great if someone experienced could point out what I could do to change the system. Ideas I have thought of so far are tightening the S/L but then I fear that would reduce the % winners, so I'm reluctant to do that as I need to allow for some modest drawdown during a trade.

Sorry, I know this is a really long question to read, but would be great if someone could help us out!

Cheers,
Mikey

try to win much less often.
 
Take a step back for a second and look objectively at your "system".

You don't have a "Half-decent" system at all - it's the sum of the parts that make the whole and as such it is a losing/break-even system - not decent at all.

I would concentrate on making your winners bigger. 10-15 pips is a very small amount. You should be looking to make as many pips as the stoploss as an absolute minimum. Otherwise you will probably never make your system profitable.

Most successful traders (and myself) never take a trade unless they can see the potential reward far outstripping the risk. Without details of your system - this should mean timing the entries as close to the stoplosses as you can - wait for a pullback before entry - or scale in your position if you are unsure.
 
Appreciate the quick replies so far, thank you. I will try to take on board your advice.
 
try to win much less often.

I very much agree.

Losing: no more and no less than a cost of doing business as a trader.

Not being able to handle losing is imo the single most important reason why most fail who endeavour to make it in trading, or why many never maximise their potential.

One reason for losing was perfectly summed up by Mark Douglas excellent and very common-"sensical" observation that there is no Holy Grail, that none can exist because anything can happen anytime at all in markets overthrowing your clever analysis, all it takes is one big order going against you and triggering your stop loss.


Brett Steenbarger post here hits the nail on the head:


"Over the last few days, I've had the opportunity to talk with everyday investors as well as my usual contacts with prop traders and portfolio managers. One of the distinguishing themes in these talks has been stubbornness versus flexibility: the willingness and ability to maneuver and adapt to changing market conditions versus the need to stick with positions and be proven correct.

Among the traders, the ones who have done well in the recent market decline are those who have been selective in their risk exposure, riding short-term market moves, limiting overnight headline risk, and shifting positions tactically to adjust to volatile conditions. They have focused on making money--and limiting loss of capital. They've been quick to recognize when they're wrong, at times getting stopped out once, twice, three times before finally riding the anticipated market move.

The traders who have performed most poorly are those that have been stubborn. They have had strong views of markets and have stuck with those views, even in the face of markets that have moved against them. Convinced that markets are overdue for reversal, they have faced large losses as weakness has led to further weakness. They have been more concerned about being right than making money; they've been reluctant to be stopped out, instead waiting for markets to validate their opinions.

Interestingly, I'm seeing the same dynamics among individual investors. Some have made proactive adjustments to their portfolios to reduce risk, including reducing exposure to vulnerable investments (financial stocks, preferred shares, high yield bonds); some are also revising their views of the financial future, looking for themes and sectors that will benefit in a changed economic environment (firms that generate cash and are less reliant on borrowing; firms that appeal to consumer value rather than luxury; safe yields among beaten down bonds). Other investors are frozen, immersed in hope that "things will come back". They remind me of the dot-com investors who, stunned by losses of 50% in their holdings, insisted that a bottom was at hand. Sadly, many of these shares declined by more than 75% before we saw a durable market bottom--and many of those companies never survived the decline.

This is one of the paradoxes of trading and investing: you need distinct views to put your money at risk, and you need to persist with these views in order to ride winners. At the same time, you can't become married to these views; you need to quickly revise and even abandon your outlooks in order to limit losses. We can trade and invest for ego needs, and we can trade and invest to make money: over the long haul, we can't do both. It takes a strong ego to formulate and act upon one's ideas; an even stronger one to step back from those ideas in the face of non-confirmation."


LINK:
TraderFeed: The Need To Be Right Versus The Need To Make Money



Also keeping in mind his observation from working with top traders that:

Brett Steenbarger:

"...As a rule, maximizing batting average/minimizing drawdown comes at the cost of lowering overall system profitability...."





-Richard Dennis' former Turtles partner William Eckhardt corroborated that in Market Wizards:

William Eckhardt:

The Win/Loss Ratio
“One common adage on this subject that is completely wrongheaded is: You can’t go broke taking profits. That’s precisely how many traders do go broke. While amateurs go broke by taking large losses, professionals go broke by taking small profits. The problem in a nutshell is that human nature does not operate to maximize gain but rather to maximize the chance of a gain. The desire to maximize the number of winning trades (or minimize the number of losing trades) works against the trader. The success rate of trades is the least important performance statistic and may even be inversely related to performance. …

What really matters is the long-run distributions of outcomes from your trading techniques, systems, and procedures. But, psychologically, what seems of paramount importance is whether the positions that you have right now are going to work. Current positions seem to be crucial beyond any statistical justification. It’s quite tempting to bend your rules to make your current trades work, assuming that the favorability of your long-term statistics will take care of future profitability. Two of the cardinal sins of trading - giving losses too much rope and taking profits prematurely - are both attempts to make current positions more likely to succeed, to the severe detriment of long-term performance.

Market Wizards



-Billionaire hedge fund manager Bruce Kovner:

Michael Marcus taught me one other thing that is absolutely critical: You have to be willing to make mistakes regularly; there is nothing wrong with it. Michael taught me about making your best judgment, being wrong, making your next best judgment, being wrong, making your third best judgment, and then doubling your money.

Whenever I enter a position, I have a predetermined stop. That is the only way I can sleep. I know where I'm getting out before I get in. The position size on a trade is determined by the stop, and the stop is determined on a technical basis. I never think about other people who may be using the same stop, because the market shouldn't go there if I am right.

Market Wizards



- Richard Dennis (Turtles daddy, who turned 400 bucks into several hundred million):

When things go bad, traders shouldn't stick their head in the sand and just hope it gets better.

You should always have a worst-case point. The only choice should be to get out quicker.

The worst mistake a trader can make is to miss a major profit opportunity. 95 percent of profits come from only 5 percent of the trades.




- Bill Lipschutz (Biggest earning earning trader for many years at the then investment bank Salomon Brothers before he started his own hedge fund):

I don't have a problem letting my profits run, which many traders do. You have to be able to let your profits run. I don't think you can consistently be a winner trading if you're banking on being right more than 50 percent of the time. You have to figure out how to make money by being right only 20 to 30 percent of the time."
New Market Wizards



An observation echoed by Kenneth Grant, who in "Trading Risk: Enhanced Profitability through Risk Control", depicts his experience as risk manager for some of the best and most successful hedge funds, amongst others Paul Tudor Jones funds and Steve Cohens SAC Capital, that:

ACROSS ALL MARKET CONDITIONS, TRADING STYLES, TIME FRAMES AND TRADERS, ONE RULE HOLDS TRUE:

10% OF ALL TRADES INEVITABLY ACCOUNT FOR 90% OF PROFITS !



- George Soros:

I don't care when I'm wrong. I cut my losses and move on to the next opportunity. Trading is not about being right. It's about how much you make when you are right.

A lot of these people became Billionaires because they understood that losing is part and parcel of trading.

Benchmark round a bit, and emulate the best.
 
It sounds like you've got a system very similar to the one I'm trying to auto-trade. Basically a mean-reversal when the market gets too far out of bounds, right?

I think your best plan is to look for signs the market is changing between two different trends. So, if it's been slowly moving along in one trend, and suddenly takes off in the other direction and accelerates, it's probably a sign it's an actual genuine price change rather than traders getting carried away a bit. Does that make any sense?
 
Ive demo'd and subsequently gone live with a system of mine which works pretty well. I've been trading FOREX and my success rate is 70%.

Take profit at 25pips. No stop loss. That should give you a 100% success rate on closed trades.

I'm being an idiot, but only to make a point :)
 
Hi Everyone, I'm in need of some help with my trading strategy, just wondered whether any of you would be kind enough to help me try and improve my current strategy.

Ive demo'd and subsequently gone live with a system of mine which works pretty well. I've been trading FOREX and my success rate is 70%. What i mean by this is that I've reviewed every single trade made for the past 3months and this is the % of trades I can make a profit on.

However, the wins are fairly small (like 10-15pips max), whilst my losses are bigger (I use a S/L determined by first total capital risk (nothing more than 2% of my total capital) and then by previous swing high/low on charts - depending on currency pair this is approx. 30Pips).

The upshot of all of this is that i have a half-decent system which wins more than it loses, but ultimately struggles to break-even on a weekly/monthly basis. Some weeks I'm up, some weeks I'm down. N.B. I'm down overall (albeit a nominal amount).

Would be great if someone experienced could point out what I could do to change the system. Ideas I have thought of so far are tightening the S/L but then I fear that would reduce the % winners, so I'm reluctant to do that as I need to allow for some modest drawdown during a trade.

Sorry, I know this is a really long question to read, but would be great if someone could help us out!

Cheers,
Mikey

90% fail. The odds are firmly against any of us succeeding at trading.

Trading is far from simple. Poor implementation of a near perfect trading plan can result in heavy losses.

Many new and old T2W & other trading forum members talk as if they are highly successful high flying traders to whom success came easy.
Sadly, regarding profitability, i think many members are lying, or kidding themselves, or both.

Trading is not simple. It is a mine field.
 
your risk/reward ratio is 0.5 at the moment. Which is a problem for any system that isn't 100% successful. I haven't bothered to read anything about your system but if it won't allow you to either let profits run longer or use tighter stops you're going to struggle.
 
Ive demo'd and subsequently gone live with a system of mine which works pretty well. I've been trading FOREX and my success rate is 70%.

However, the wins are fairly small (like 10-15pips max), whilst my losses are bigger (I use a S/L determined by first total capital risk (nothing more than 2% of my total capital) and then by previous swing high/low on charts - depending on currency pair this is approx. 30Pips).

Your problem is really down to expectancy:

You can make more money than any person can spend being "right" only 33% - ie one third - of the time, IF your wins on AVERAGE are 3 times the size of your losers.

You by contrast are "right" 70% of the time, but that is simply not good enough to make your risk / reward of, on average, 30 : 10 (if you say that 15 is max already), net profitable.

That does not generate a consistently equity curve which is what you are experiencing.

To get your system to work you need to either improve your risk / reward ratio, ie cut your losses earlier or let your winners run more, OR, if you maintain your current R:R ratio, you must increase your winning percentage to at least 80% .

Play around with different winning percentages / risk - reward ratio relationships here:

Random Equity Curve Simulator of a trading system.

Good luck !
 
Thanks so much for all your replies. I kinda knew the answer to my own question already I guess. I will work with tightening SL initially and see how I get on.

Thanks BSD for that link, that's a really useful simulator.

I will come back when I've had time to play around with it and post my findings.

Thanks again all.
Mikey
 
Not only tighten your stop loss- but work on filtering out some of the setups that have less potential to succeed. This way, tightening your stop loss shouldn't impact on your win rate too badly.
 
A Good Trading System

Hi Everyone, I'm in need of some help with my trading strategy, just wondered whether any of you would be kind enough to help me try and improve my current strategy.

Ive demo'd and subsequently gone live with a system of mine which works pretty well. I've been trading FOREX and my success rate is 70%. What i mean by this is that I've reviewed every single trade made for the past 3months and this is the % of trades I can make a profit on.

However, the wins are fairly small (like 10-15pips max), whilst my losses are bigger (I use a S/L determined by first total capital risk (nothing more than 2% of my total capital) and then by previous swing high/low on charts - depending on currency pair this is approx. 30Pips).

The upshot of all of this is that i have a half-decent system which wins more than it loses, but ultimately struggles to break-even on a weekly/monthly basis. Some weeks I'm up, some weeks I'm down. N.B. I'm down overall (albeit a nominal amount).

Would be great if someone experienced could point out what I could do to change the system. Ideas I have thought of so far are tightening the S/L but then I fear that would reduce the % winners, so I'm reluctant to do that as I need to allow for some modest drawdown during a trade.

Sorry, I know this is a really long question to read, but would be great if someone could help us out!

Cheers,
Mikey

The key to any "Good" trading system is trade management. Specifically, it should let your winners run and cut your losers quick. Now the determination of "quick" will be different for each trader. You started to define yours in your post; however, I think you need to redefine when you cut your losses. Your stop seems to be a little loose. I love the fact that you are trading a system. On top of that a system that you tested. That puts you ahead of 80% of the traders. Suggestions for stops: Support and Resistance (either on intraday, daily, monthly or weekly chart - just be consistent), moving averages, add a new technical indicator. I prefer using moving averages. I use the same chart to get out of a trade that I use to get into a trade.
 
Well I used that simulator that BSD gave a link for and I got an equity line going slowly downwards eroding all my precious capital !! (albeit with a few minor ups along the way). So I definitely need to stop and revise my strategy.

I definitely have no problem with discipline and sticking to my trading plan/system is something I dont struggle with so I'm going to work with the S/L first. My S/L is always garnered by looking at the previous swing high/low (subject to a maximum S/L of 30pips). So I always know the maximum damage I can do on any one trade.

Part of my strategy is something called WIPLIP (I've mentioned it before on here) but it stands for When In Profit, Lock In Profit. I devised it so that winners never turn round and become losers. So when a trade goes into blue, I lock in 1pip so that the worst that could happen is a tiny profit (maybe this helps explain my 70% win rate). The WIPLIP is also 'tiered' so that I trail it the more the trade goes into the blue. However, I'm reckoning now that this is not such a good idea as when the trade retraces for example, I'm getting hit out early and not letting it run on.

I'll be honest, I'm not a big fan of indicators as most of them lag (including MA's) so I'd rather stick to revising my S/L based on price action. I'm going to make it tighter, I'm not sure how yet, I might for example use a the high/low of the previous candlestick bar or something (but subject to a maximum of 25pips instead of 30). Or something like that, just thinking out loud at the moment.

Anyway, thanks again everyone for all your support, it's really given me stuff to work on and think about, and I will post back soon when I have any update.
 
Part of my strategy is something called WIPLIP (I've mentioned it before on here) but it stands for When In Profit, Lock In Profit. I devised it so that winners never turn round and become losers. So when a trade goes into blue, I lock in 1pip so that the worst that could happen is a tiny profit (maybe this helps explain my 70% win rate). The WIPLIP is also 'tiered' so that I trail it the more the trade goes into the blue. However, I'm reckoning now that this is not such a good idea as when the trade retraces for example, I'm getting hit out early and not letting it run on.

That explains the 70%!

I really dislike the idea of 'locking in profits' in this way (I love it from an emotional point of view but that is irrelevent!).

The stop has to be in a place that maximises the probabilty of hitting your profit target whilst minimising your risk. There is (I'm so tempted to use capitals here but I know it is naff...) absolutely no reason why this kind of strategy will achieve this, all it does it make you feel better. The market doesn't care how you feel.

Always keep a S/R level between the price and your stop. Give the retracements room and you can stay in the game.

Ben
 
try taking part of the profit as a scalpand then if it does retrace back through Breakeven you're losses are less, obviously the runners profit is reduce but since you're not running them anyway then nothing lost.

Eg sell 3 lots at 14880 s/l at 14905

buy one lot at 14870 now you can either move the stop to 14885 and you're still out for nowt if it retraces or leave it where it is and reduce losses on pullback
 
sound to me like your focusing on the wrong things...

you have got a strategy with a 70% win rate but your 30% losses are greater than your 70% winner.

I can have a 90% loosing system and many people do and I have a far worse strategy as its very whippy.. but the winners are far far bigger that the losses.

What a lot of people have mentioned is your risk to reward ratio your risking more than your wining.

So what do you do?

first I would say stop looking for a high winning % and other (as far as I'm concerned) other non important statistic and start looking at at the bottom line...

Are you making more than your loosing or loosing more than your making?

personally Ive never bother looking at all these figures or the standard R/R that all the texts books tell us to look at. contrarian I know but hey it works for me.

It could simply be that you need to reconsider your trade management stop loss sizes for example would be one consideration as well as your target levels.

I do think that placing stops past swing levels is a good thing so I think I would focus on the targeting of the strategy myself.

What would happen to your results with a target at the next level of supp or res...?

would the risk on those trades be worth the reward...?

Without knowing what your doing in detail I can only give some general advice for you but I would say look at the component parts rather that the win loose ratio for me this is nonsense and not worth the effort as a lot of people will scrap a strategy simply because of an unfavourable W/L ratio. What if that strat you just put in the bin was pulling your a 1000 pips a month with a win rate of 10%

Food for thought I hope.

and a message to the others, be constructive instead o destructive... remember when you were learning and what it was like to develop a strategy.
 
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I think we've all been down this road, some still are down it.
People love to be right in anything they do. Your emotions like to play with you,lol.
Evil things they are.
When you take the concept of right or wrong out of your trading you will be on the right track!
It's so difficult to be wrong! But in this game or any game of probabilities being right or wrong just doesn't matter.This might take you years to grasp. Believe me, I know.
Focus on your risk/reward and forget about being right or wrong. Easier said than done :)
If i looked at my trades, Out of 10 trades, maybe 4 lose, 5 breakeven or are small winners and 1 runs to make up everything plus much more!
its a numbers game. Don't focus on jamming your stop up to make your risk/reward look better.
The market needs space to move.
Good luck and keep at it!
 
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