Many traders focus on having as many winning trades as possible. But it actually doesn’t matter how many winning trades a trader produces, all it comes down to is the bottom-line of are the accumulated profits per period bigger than the total losses? So even if a trader generates 99% little losses but then 1% large profits that well outperform the losses, than they have still performed better than the trader who proudly announces that they have a 90% profit loss ratio with 10% of losses outweighing the profits.
The examples below is a great illustration how focusing on % winning trades can be detrimental. Trading System 2 is the better system because it generates more profits. Trading System 1 is all about ego and results in losses. System 2 is all about mathematics.
System 1 below looks more impressive than System 2 if we use your focus on accuracy. 85% accurate, you can’t go wrong right? Wrong:
| Trading System 1:
Percent Win: 85%Percent Loss: 15% Avg Profit: $500 Avg Loss: $1,500 Expectation per trade: $200 |
Trading System 2:
Percent Win: 45%Percent Loss: 55% Avg Profit: $1,500 Avg Loss: $500 Expectation per trade: $400 |
