Wednesday, 31 March 2010

Achieving a High Win Rate

Every time I put a trade on, I take on risk - a risk of a loss of my money. Sounds obvious. The more trades, the more risk.

But what isn't obvious is that new traders take on this risk without a proper analysis of the consequences. Knowing the risk of my trading plan is a fundamental requirement to achieving CP (consistent profitability) as other wise you are only "hoping" you will be profitable.

How do you find out this magic number? Through SIM trading if you're smart, or by live trial and error and losing money if that's the way you want to go - certainly, initially, there will be a difference between your SIM and live trading.

This aspect of trading is one of the few elements that you can control. What percentage win rate do I require from a setup? You control this by your requirement in the "picture" you want to see before you put on that trade. That snapshot that determines GO or NO GO at the close of the bar. You control that. A specific and consistent application of your requirements will make you trade less and win more. The more particular you are, the higher the win rate.

To tune your level of earnings you have the magic of position sizing. Range Bars enable me to position size each trade equally - something that I would need to do on a trade by trade basis if I was using time or tick bars as then my stop loss would need to be more variable. So I become more particular about my setups but trade larger to earn enough.

If your win rate is not what you want, it is either because you have not been specific enough in your trading plan or because you need to tighten your requirements in your setups.

The Euro FX chart below shows how easy it can be. It doesn't get much clearer than this.

click to enlarge


  1. Dear Tom,
    You've got a tremendous talent for wit and writing, please do write a book concerning trading. Reading your column everyday is like listening to my favorite songs on the radio.
    Would you at least consider self publishing a book, there are so many of us who would be keen to purchase it, even though I know you have no alterior motives for this website, we would be blessed to have a compilation of your thoughts and anecdotes from so many years experience trading.
    Please do consider it.
    My Regards, Cory

  2. Tom, we got it, "the easy part"....

    Can we talk about stop outs and profit exits, as it relates to ema's, range bars, cvd, vb, 6cci, 45cci, two opposite bars, under/over momdot, etc...?

    By looking at your charts I can not find consistent exits for the trades(outside of x1=+2 points)

    Need mentoring on stop outs and exits in more detail as it relates to the charts

    Thanks for all.

  3. Hello Tom,

    I whould really appreciate some clues on managing of open positions, too.

    Thanks for the very helpfull blog!