Why a high trading win rate isn’t that important
Consider this scenario…
Two traders, Sam and Paul, have win rates of 70% and 40% respectively. Looking at these win rates, you may assume that Sam is the more successful trader, but you’d be wrong.
Looking at their trading returns overall, Sam has lost 25% whereas Paul has gained 30%. This is because Sam may have more profitable trades, but loses money overall, whereas Paul wins less than half his trades, but these trades are more profitable.
The crucial thing to note here is that you can win a lot of your trades, but large losing trades can wipe out those gains.
The key to successful trading
The way to ensure you win overall at trading is to adhere to strict money management rules, Tom Gentile in Power Profit Trades explains. There are three main aspects to this…
Money management rule #1: Risk
You need to limit your risk. The easiest way to do this is to stake a small percentage of your trading account on each trade, say 2%.
Money management rule #2: Be consistent
Trade the same amount each time. This could be a percentage of your account or a fixed rand amount. You may have an urge to up the stakes when you’ve had a winning streak, but don’t.
Money management rule #3: Follow your strategy
Only put on trades that your strategy flags up as a potential winning trade. Your analysis should tell you when it’s time to put a trade on. Don’t let other things interfere with this process.
By sticking to these rules, you should see your trading returns benefit.
So there you have it. Why the number of trades you win doesn’t determine your trading success.
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