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Win Percentage and Risk Reward Question
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Win Percentage and Risk Reward Question

  #1 (permalink)
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Win Percentage and Risk Reward Question

This question is mainly for successful intraday traders who have survived the learning curve and are able to make fairly consistent income. What win percentage do you aim for, and what is your typical risk:reward going into a trade? Do you give a trade room to "work", or if the trade starts to go bad, exit immidiately? Do you subscribe to the "golden rule" of letting your profits run and cutting your losses short, or do you exit trades for a scalp most of the time? From what I've read it seems a lot of successful traders tend to have a less than 50% accuracy but the reward:risk is what makes them profitable. Have you heard of any successful traders who risk a couple of points to make a few ticks, or traders who use 1:1 and have a high win percentage? Thanks!


Last edited by SpencerEng; May 17th, 2015 at 04:36 AM.
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SpencerEng View Post
This question is mainly for successful intraday traders who have survived the learning curve and are able to make fairly consistent income. What win percentage do you aim for, and what is your typical risk:reward going into a trade? Do you give a trade room to "work", or if the trade starts to go bad, exit immidiately? Do you subscribe to the "golden rule" of letting your profits run and cutting your losses short, or do you exit trades for a scalp most of the time? From what I've read it seems a lot of successful traders tend to have a less than 50% accuracy but the reward:risk is what makes them profitable. Have you heard of any successful traders who risk a couple of points to make a few ticks, or traders who use 1:1 and have a high win percentage? Thanks!

That's a lot of questions

1. One doesn't "aim for" a particular winrate. The winrate is a result of having a thoroughly-tested and consistently-profitable trading plan and following it without hesitation. If all of that is there, the winrate will automatically be high. If it isn't, then the trades are gambles.

2. Whatever R:R one determines before going into a trade is in his head, not in the market. The market couldn't care less what you want. It'll give you what it's willing to give you. Whether or not you take it is not the market's responsibility. This is not to say that one can't predetermine how much risk he's willing to assume, and there are ways to make this at least somewhat realistic in re the instrument one is trading. But one's own tolerance is also a factor. The market knows nothing about that.

3. In order to determine whether or not to give the trade room to work and, if so, how much room to give it requires the study of hindsight charts to determine how price behaves once you've entered. Does it dawdle? Does it waffle? Does it back up on you before moving in the desired direction? If so, how much? As for exiting before all of this plays out, how much of your desire to exit has to do with the market behavior itself and how much has to do with fear? If the latter, get over it. There's no reason to go through all that testing if you're not going to let it work in your favor. Does this mean there will be no losses? Of course not. But their incidence will be trivial.

4. Some people scalp. Some people let their profits run. Your choice will depend greatly on your goals and objectives. However, you will soon discover whether you are good at scalping or not. If you're not, then that's that.

5. Somebody else's winrate and R:R are irrelevant to you. You will hear of and read accounts of people having low winrates yet trading "successfully". While this may be true -- and there's really no way of knowing -- you must ask yourself what your state of mind will be after taking seven losing trades in a row out of ten. If like most people you'd grab onto whatever profit that eighth trade offered and be glad for it. You might do the same for the ninth and tenth, ending up with a loss for the ten in total. If you think you can ignore all those losses and let your profits run on subsequent trades, that's great. It's also virtually impossible. But best of luck to you if you decide to give it a try anyway. A more desirable alternative is to develop a trading plan that provides a higher winrate to begin with. That will at least give you the confidence to let your profits run which will in turn provide you with a healthy P:L ratio.

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DbPhoenix View Post
That's a lot of questions

1. One doesn't "aim for" a particular winrate. The winrate is a result of having a thoroughly-tested and consistently-profitable trading plan and following it without hesitation. If all of that is there, the winrate will automatically be high. If it isn't, then the trades are gambles.

2. Whatever R:R one determines before going into a trade is in his head, not in the market. The market couldn't care less what you want. It'll give you what it's willing to give you. Whether or not you take it is not the market's responsibility. This is not to say that one can't predetermine how much risk he's willing to assume, and there are ways to make this at least somewhat realistic in re the instrument one is trading. But one's own tolerance is also a factor. The market knows nothing about that.

3. In order to determine whether or not to give the trade room to work and, if so, how much room to give it requires the study of hindsight charts to determine how price behaves once you've entered. Does it dawdle? Does it waffle? Does it back up on you before moving in the desired direction? If so, how much? As for exiting before all of this plays out, how much of your desire to exit has to do with the market behavior itself and how much has to do with fear? If the latter, get over it. There's no reason to go through all that testing if you're not going to let it work in your favor. Does this mean there will be no losses? Of course not. But their incidence will be trivial.

4. Some people scalp. Some people let their profits run. Your choice will depend greatly on your goals and objectives. However, you will soon discover whether you are good at scalping or not. If you're not, then that's that.

5. Somebody else's winrate and R:R are irrelevant to you. You will hear of and read accounts of people having low winrates yet trading "successfully". While this may be true -- and there's really no way of knowing -- you must ask yourself what your state of mind will be after taking seven losing trades in a row out of ten. If like most people you'd grab onto whatever profit that eighth trade offered and be glad for it. You might do the same for the ninth and tenth, ending up with a loss for the ten in total. If you think you can ignore all those losses and let your profits run on subsequent trades, that's great. It's also virtually impossible. But best of luck to you if you decide to give it a try anyway. A more desirable alternative is to develop a trading plan that provides a higher winrate to begin with. That will at least give you the confidence to let your profits run which will in turn provide you with a healthy P:L ratio.


So the win rate is really determined based on your risk/reward ratio?

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DbPhoenix View Post
The winrate is a result of having a thoroughly-tested and consistently-profitable trading plan and following it without hesitation. If all of that is there, the winrate will automatically be high. If it isn't, then the trades are gambles.

I don't agree with this at all.

In his book "Beyond Technical Analysis", Tushar Chande explains in some detail, with examples, why many of the most successful trend-following methods tend to have win-rates between 25% and 50%.

Many of the world-famous and consistently successful traders interviewed by Jack Schwager in his books "The Market Wizards" and "The New Market Wizards" also explain at some length why - according to what type of systems they're using - it can be easier and more secure making a living with win-rates around 30% or so.

It really doesn't follow at all that a profitable and consistent trading-plan, unhesitatingly executed, necessarily implies a high win-rate. Nor that the trades are somehow "gambles" if the win-rate is below 50%.

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Tymbeline View Post
I don't agree with this at all.

In his book "Beyond Technical Analysis", Tushar Chande explains in some detail, with examples, why many of the most successful trend-following methods tend to have win-rates between 25% and 50%.

Many of the world-famous and consistently successful traders interviewed by Jack Schwager in his books "The Market Wizards" and "The New Market Wizards" also explain at some length why - according to what type of systems they're using - it can be easier and more secure making a living with win-rates around 30% or so.

It really doesn't follow at all that a profitable and consistent trading-plan, unhesitatingly executed, necessarily implies a high win-rate. Nor that the trades are somehow "gambles" if the win-rate is below 50%.

Key words being "in his book(s)". Authors regularly and almost invariably approach this as theory, ignoring the psychological effects of experiencing 7 losers out of every 10. Most of these don't trade. Or they're terrible at it. Or they're trading OPM.

The individual trader should have a winrate of at least 50% with a corresponding P:L. Or better. If he doesn't, then he doesn't have a thoroughly-tested and consistently-profitable trading plan (or, if he does, he isn't following it).

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