Choosing A Forex Signal Provider - A Look At Win Percentage
It would seem that the closer a trader is to 100% winning trades, the better trader they are. On the flip side it would seem that the closer they are to 0%, the worse they are. While it is certainly true that you would like to win the most trades possible, there is more to it than that. I would argue that a 95% win rate is infinitely worse than a 65% win rate. Hopefully this article will help to tell you why.
First we'll take a look at traders with a low win rate. We will classify 0% to ~40% as low. If a trader fits into this range, then the closer they are to zero probably means the worse they are. Most traders in this lower range are losing traders. You will occasionally find a trader who attempts to catch very large moves with very tight stops. This type of trader may have an extremely low win % and still be a very successful trader.
Next, let us look at the 40% - 70% range. Most of your winning traders will fall somewhere in here. They win not because the majority of their trades are winners with few losers. It is quite possible that have more losing trades than winning ones. Their success comes from their ability to correctly manage their trades once opened. They take advantage of stops that will then be executed more often than not. This looks for all the world like a losing trade, and it is, but a small loser. The traders that can manage their trades effectively most often are the ones that are able to cut their losses and allow their winners to take off. There are very few traders out there who have the discipline to take advantage of this simple concept.
Our final grouping is in the very high range of a percentage of 70 and above. Most people want to fall on the bandwagon of a trader who is close to 100%. Most people are making a mistake; they should actually align themselves with the trader of a much more modest % win rate. Why is that, you may ask? The reason for the high win percentage of these traders is that they are most of the time taking profits off the table as they appear. A working plan if they also cut their losses in the same way. Any trader, though with a 95 % plus win rate is not following this plan. They do not accept small losses and go forward with their trading day. Oh no, they allow a loser to run rampant for all eternity and may even add to that position in some circumstances. You can see that this in time will wipe out many months of winning trades in one blow and the results are disastrous. For every 500 pip winners obtained one at a time, one 500 pip loser negates them all. And yet, this trader falls into our "winning" range of over 99% winning trades and is in reality a big loser.
Do not think that the reason for this article to be written is to say that no trader outside of a specific range can be a winner. There are certainly many people who can and do win with a winning % outside of the ranges described above. The point of the article is to warn you to look very closely at the trader with a 95% win rate. His losing trades will probably cause him to implode down the line. - 23229
First we'll take a look at traders with a low win rate. We will classify 0% to ~40% as low. If a trader fits into this range, then the closer they are to zero probably means the worse they are. Most traders in this lower range are losing traders. You will occasionally find a trader who attempts to catch very large moves with very tight stops. This type of trader may have an extremely low win % and still be a very successful trader.
Next, let us look at the 40% - 70% range. Most of your winning traders will fall somewhere in here. They win not because the majority of their trades are winners with few losers. It is quite possible that have more losing trades than winning ones. Their success comes from their ability to correctly manage their trades once opened. They take advantage of stops that will then be executed more often than not. This looks for all the world like a losing trade, and it is, but a small loser. The traders that can manage their trades effectively most often are the ones that are able to cut their losses and allow their winners to take off. There are very few traders out there who have the discipline to take advantage of this simple concept.
Our final grouping is in the very high range of a percentage of 70 and above. Most people want to fall on the bandwagon of a trader who is close to 100%. Most people are making a mistake; they should actually align themselves with the trader of a much more modest % win rate. Why is that, you may ask? The reason for the high win percentage of these traders is that they are most of the time taking profits off the table as they appear. A working plan if they also cut their losses in the same way. Any trader, though with a 95 % plus win rate is not following this plan. They do not accept small losses and go forward with their trading day. Oh no, they allow a loser to run rampant for all eternity and may even add to that position in some circumstances. You can see that this in time will wipe out many months of winning trades in one blow and the results are disastrous. For every 500 pip winners obtained one at a time, one 500 pip loser negates them all. And yet, this trader falls into our "winning" range of over 99% winning trades and is in reality a big loser.
Do not think that the reason for this article to be written is to say that no trader outside of a specific range can be a winner. There are certainly many people who can and do win with a winning % outside of the ranges described above. The point of the article is to warn you to look very closely at the trader with a 95% win rate. His losing trades will probably cause him to implode down the line. - 23229
posted by X - Men @ 6:08 AM
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