A Look Into Win Percentage - Choosing A Forex Signal Provider
One would obviously surmise that a trader with a % of winning trades nearing the 100% mark would be a very good bet. Side B then would tell us that a trader with a win % closer to 0% would be a very bad bet. Obviously, winning a great many trades is a good thing, but that would be to oversimplify the matter. The hope of this article is to explain to you why a 95% win rate is way more of a loser than a 65% win rate.
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.
Lets look at the next range, say from 40% - 70%. Most winning traders will fit into this category. These traders don't win by picking all winners and only the rare loser. Indeed, they may have more losers than winners. The secret to their winning ways is that they know how to manage their open trades. They avail themselves of rational stops that will more often than not be executed. This behavior will often result in a losing trade; however, it is a small, basically inconsequential loser. These losses are only a small percentage of their successful trades. These traders usually have the ability to cut their losses and let their winners run free. Not many traders have the discipline to actually exercise this simple concept. They go all or nothing and wind up with mostly nothing.
The final group we are going to be concerned with is the one with very high wins of greater than 70%. More people gravitate to them the closer they get to the 100% mark. These people should do the opposite and leave such traders alone. Unfortunately, few of them do. By taking profit off of the table immediately on appearance, these traders seem to have an extremely high win record. This strategy would work if these same traders also cut losses in the same manner. Traders who have a 95% plus win rate will not be looking at this strategy. They will normally let a loser run ad infinitum and even add to that position much of the time rather than accepting the small loss and moving on with their trading day. Allowing a loser to run like this will in the course of time wipe out months or more of winning trades in one fell swoop and is definitely not the road to success. Keep in mind that one 500 pip loser wipes out all the gains of 500 one pip winners. On the surface, this type of trader has over 99% winning trades. In fact, he could easily have an overall losing record.
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.
Article Source: FxTradingStock.com
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To learn more about Managed Forex Accounts visit Automated Forex Trading Systems.
by: Tom K Kearns
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Word Count: 584
Date: Wed, 21 Jul 2010
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