Wednesday, 24 February 2010

In Search of a High Win Rate

Hi all, I'm still travelling, taking a few days off, so no charts, just posts. I am also behind in answering comments but will catch up soon. 

I get emails from people finding it hard to believe that it's possible to achieve a high win rate. It is hard and requires an inordinate amount of work, work that many people are not prepared to put into it. Becoming consistently profitable is no easier than going to university and becoming a top professional in any other area, it requires the same dedication and work, for most of us.

For most people, achieving CP is like winning the lottery. Not only because of the lifestyle it gives them if they achieve it, but also because their chances of getting there are about the same as winning a prize in the lottery.  The flip side of the coin is many people do achieve consistent profitability and that is why so many try.

I'm not trying to be patronising but to get there, I needed a lot of hard work. I mean really a lot. I also found I had to have a lot more winning trades than I had losers. In teaching Kiki to trade I wanted to save her the pain and financial losses I went through. I achieved that. From the many emails I get, I hear that what I taught Kiki has worked for many of you who read this blog. Good on ya all.

I cannot trade a methodology that does not have a high win rate. With a low win rate I would need to make up on one trade what I have lost on many. After losing 5 times, I won't be able to put on that 6th trade that might win it all back. What sort of business operates on the basis of selling at a loss until a hoped for sucker walks in and hugely overpays so the business is profitable?

All of the successful traders I have known over the years have had a high win rate.

Getting a high win rate means you have first found a high win rate setup by identifying the picture you need to see for it to be a winner. Setups need to be general enough so that they repeat themselves often enough to provide the trading frequency you need yet be specific enough so that it does not bring in more losing trades. My arsenal comprises about 18 setups, each of which has a high win rate. During my typical trading day I expect to see at least 5 to 9 of them and I will not take them all due to indecision on my part or just piking out for no real reason or because I lost focus.

Each setup has been identified by looking at charts. I find what would have been winning trades and reverse engineer a setup out of them by identifying through replay mode what the commonality is of at least sample of 40 of the type of trade I'm working on.

I program the basis of the setup and run a backtest over a couple of years of data. This backtest does not take into account the context as up until now my available programming skills were not up to the job. I then went over a large number of trades and looked at the context and fine tuned the setup and documented it.

The next step is SIM trading it - in my case I watch for a new proposed setup while I am already trading setups that I have fully validated.

Achieving a high win rate is all about testing. It can be done completely manually although you can do it faster if you automate a lot of it. But however you go about it, there is no substitute for the work. "The harder I work, the luckier I get" and " Genius is 98% perspiration and only 2% inspiration" are my mantra.

I will not trade live a setup that won't give me around 80% win rate in SIM. My win rates are based on achieving the first scale.

In designing a setup, I do not test for overall profitability because I know if I can get to the first scale I can manage the trade to try and maximise my profits.

In spite of what a lot of unsuccessful traders tell you, achieving a high win rate is possible if you do the work. A lot of work. You also need to develop the focus to take advantage of your work and not fall into the many psychological traps we create for ourselves.

Winning trades take care of themselves, I only need to avoid the losers. I do this by identifying what are winning trades.


  1. I agree that most traders make it harder on themselves than it needs to be. My biggest problem that I am working on at the moment is FOCUS. Trading really is easy if you find the setup that works for you and you develop the patience to wait for it and most importantly, ACT on it when it does come

  2. El,

    If I understood right, you determine context by historical S/R, MP levels, fibs etc.
    As context is very crucial in your set ups, do you look for the same/similar context each time you take a trade? Is there a correlation between your 18 or so set ups and the context?

  3. I've been a follower of your blog for a long period of time and i'm a little bit disappointed with a posts like this and i think so are many of the readers of your blog. You could ask me why? So here is the answer. In your webinar's and in your earlier posts you are talking about observation of the market, discretionary trading, trading the context and so on. Also you are talking about developing own setups. Yes, here is part of true, but only 1/2 of true. I'm not a novice trader and i know what i'm talking about after the 8 years spent in this business. The main problem is that in one posts you are talking about discretionary trading and in the another about pure mechanical trading. One couldn't backtest observed setup, and to get some "x' probability in the backtester if there is no hard and fast rules. I've developed ~ 4 profitable strategies over the time and there are hard and fast rules which you could write on the piece of paper, to get it to the novice trader and he'll become profitable if he will follow all the rules. So i think same is in your situation. Surely here are hard and fast rules, this could be observed from your charts. Like price crosses EMA, VB is down and CCI is crosing zero line. And here is a reason why are Kthe iki profitable. She know such a rules, and i don't think she had developed her own setups in such a shord period of time. So i think we shouldn't speak about trading context and so on. So either you speak about pure discretional trading or either mechanical. If you are talking about both - you are confusing newbies, which are your followers and don't understand how to trade. So if you would like to be an accountant for your and your daughter trades you should post your charts and if you would like to teach you should give people these obvious rules and please, don't speak about discretion and context. These rules, which you had put in the backtester and got 80%+ win rate. Or which know your daugter. Desribe your basic setup without discretion, as KikiFlo Bot trading it. As i said you told some rules to this Bot isn't it? I think many of your followers thinks
    same as myself. So if you re teacher, and if you would like to teach you should post the rules like this...( here is my modification of my trading system a-la "electonic local" and how i would trade in your way).

    1. Instrument: ES
    2. 1.25 Range Bars, 33 and 99 EMA, anything else, as in your situation.

    3. Long entries.
    3.1. Wait for the price crossing and closing above 33 ema. Full body should be above 33 EMA, and not part of the body. For the conservative traders wait for the close above 99 EMA too. All the parameters should be met:
    3.2. Cumulative delta is green for at least 3 candles; delta momentum is green and rising, CCI is crossing zero line or crossed it already and headed up. Stop - below 33 EMA or x range bars, like 2 range bars or 3 range bars. Profit target - 2 points. That's all. trade this setup and you'll be profitable. If you would like to be MORE profitable and to have more winning trades you should like on MP, trendlines, VAH and VAL and so on. so, electronic local think about my words or, please, don;t confuse people.

  4. Hi,El,
    Thanks for this great post of revealing your underlying methodology and trading philosophy.
    Just a small question.
    You mention that your have 18 setups. Are trading against POC,VAL and VAH three setups or only one setup based on the same logic?
    Thanks again.