Tag Archives: Trade Series

A 50% Win Rate IS Enough

 

I love this recent email exchange with a new trader…

Email received: (We'll come in mid-stream as the earlier conversation is not relevant to this article!)

Great Lance, thanks for responding and giving me all this information.

I plan on trading highly liquid stocks and probably the intraday with the occasional swing trade. I've been out of the market for a while so I am going through some of the reads you have recommended. Come Into My Trading Room is excellent.

My problem is that I need to fine tune my studies because what I think works ends up not 50% of the time.

I love how you explain things and looking forward to buying your strategies. Your emails are great also. Thanks Lance.

 

My response:

Thanks. I'm glad you're finding value in my writing.

You said, "My problem is that I need to fine tune my studies because what I think works ends up not 50% of the time."

Obviously I don't have an real insight into how you're trading. But here is a different way of thinking of the problem…

What if 50% winners was enough? What if you could work to capture more of the move in those that did win. And cut the losses quickly on those that lost.

That is, accepting 50/50 and profiting from a higher win/loss size ratio.

Seriously… 50% can be enough.

See here also: http://yourtradingcoach.com/trading-process-and-strategy/stop-hoping-your-trade-will-win/

 

His response:

I have never thought of it in that way but now I will!!

 

Awesome! This is one of the many important breakthroughs that we need to achieve along our path to professional trading.

It's such a simple concept. But it's hard to see. In some ways it goes against our natural desire to win. And we're bombarded daily with advertising copy promoting high win percentage strategies.

But the fact is that long-term profitability is not just a function of our win rate. Just as important is the Win/Loss Size Ratio (WLSR).

  • WLSR = Average Win / Average Loss

 

If you achieve a 50% win rate across a series of trades you can still profit provided your average win is greater than your average loss.

In my own trading, the win rate is the least important of these trade statistics.

In a 20 trade sample I expect to achieve a win rate anywhere between 40 to 70 percent. But I aim to profit by keeping the average win greater than the average loss.

Yes… 50% can be enough.

50% winners across a whole month can be profitable, provided your average win is greater than your average loss.

50% winners across a whole year can be profitable, provided your average win is greater than your average loss.

50% winners across your career can be profitable, provided your average win is greater than your average loss.

Let's look at a few trades. Obviously eight trades are too small a sample size to really concern ourselves with the stats.

But it's eight trades that provided four wins and four losses.

And yet it profited.

Because the average win was greater than the average loss.

A 50 percent win rate is enough

A 50 percent win rate is enough

A 50 percent win rate is enough

A 50 percent win rate is enough

A 50 percent win rate is enough

A 50 percent win rate is enough

A 50 percent win rate is enough

A 50 percent win rate is enough

 

By all means, aim for as high a win rate as you can achieve.

But seriously… 50% can be enough.

Happy trading,

Lance Beggs

 

PS. Note: This discussion has excluded consideration of commissions and other business expenses, as they will vary from trader to trader. Obviously while a series of trades may well be profitable in and of themselves, a business profit is only achieved if these trade profits are sufficient to overcome commissions and other expenses. But the fact remains, a 50% win rate will still be sufficient. You'll just need a slightly higher WLSR to cover these costs.

 


 

I Was Wrong Again

 

You won't be successful as a trader until you're comfortable with the idea of being wrong.

I'm wrong EVERY DAY.

Numerous times.

I'm ok with that.

And that's part of why I'm successful.

Trading success requires that you accept and understand that success...

comes over a series of trades.

Individual trades are irrelevant.

You will be wrong!

I was wrong again.

Part of the position was stopped out at -2.0 points; the rest was at -2.25 points.

Whatever!!!

I step aside.

I regroup.

And I return and do it right.

Because, you know what? One trade does not define the success or failure of my trading business.

A trading edge plays out over a SERIES OF TRADES.

Often!

It took me two more trades to get back in front.

One that almost did it… it's just the commissions that kept me in slight drawdown.

Accept it. And...

What was I saying before about "right but mismanaged"?

Thankfully there was opportunity to re-enter!

learn to profit despite your imperfection in decision making and trade execution.

Yep… playing The Fourth Principle would have worked out so much better.

But instead, I'm left with a whole lot of IMPERFECT DECISION MAKING!!!

And yet… that's reality.

I'd love to show you only the "perfect" trade sequences.

But that would be doing you a disservice.

Reality is sometimes messy. You need to accept that.

And you need to learn to profit DESPITE your imperfection.

So if you find yourself overly frustrated after a trade loss, and unable to get back in while the premise is still valid, ask yourself why?

Do you not believe in your edge?

Do you not believe in your ability to trade your edge?

Are you trading too much size, such that a single loss actually HURTS?

Or have you not yet truly understood and accepted the long-term nature of this business (aiming for positive results over a series of trades rather than on every single trade)?

You won't be successful as a trader until you're comfortable with the idea of being wrong.

I'm wrong EVERY DAY.

Numerous times.

I'm ok with that.

And that's part of why I'm successful.

Happy trading,

Lance Beggs

 


 

Review and Improve

 

You might like to consider your review process as the vehicle which drives your trading business to its ultimate destination.

Whether that destination is ongoing improvement and eventual success… or continued mediocrity, frustration and failure… is completely up to you.

If you've got nothing in place, here is a simple process to get you started.

Once you're comfortable with this, there is great scope to expand it to new areas of review. It doesn't solve everything.

But again, if you've got nothing in place, consider implementing this process RIGHT NOW.

Review and Improve

Look at your last 20 trades. Study them with the benefit of hindsight.

Examine 50 if you prefer. Or 100. Find the right compromise for sample size, which is large enough to be statistically significant and small enough to ensure your review process occurs on a regular basis. But not less than 20. I would suggest that is the absolutely minimum.

Once you've gathered all the trade data and charts, let's check the quality of the setups.

How many of your trade ideas were in chart areas which DID offer potential for multiple-R profits (2R minimum)?

It doesn't matter whether you actually managed to profit, or not.

We're checking the general concept. The trade idea.

We're making sure you're trading in the right areas of the chart.

Did price move from the setup area a sufficient distance to provide multiple-R returns?

Take note of all the trades within the sample which achieved this goal. And now let's check the quality of trade entry.

Now consider those trades that were in good multiple-R setup areas. How many were you able to enter at a place and time which offered good potential to catch those multiple-R profits?

Again, it doesn't matter if you achieved a profit or a loss.

With the benefit of hindsight, given where you entered, is it reasonable to expect that a successful trader could manage that position to achieve multiple-R profits?

How many of these trades would you classify as having a good entry?

Take note of them… and let's move on to check the trade management.

Now consider those trades that were in good setup areas and which were entered well. How many of these were successfully held from entry to the first target level?

How many were you able to hold open to the initial target point, avoiding all temptation to scratch the position early?

And then…

Of those which did achieve the initial target, how many of these were held to a further "hindsight perfect" exit point?

Again, take note of how many achieved this aim.

And now let's use this information to drive our business forward.

Looking at these figures, which area do you need to improve when trading the next sample?

It's important that we focus on one area at a time.

And that we work in order.

Get the setups right first. Are you happy with the number of trade ideas that are actually providing multiple-R profit potential? If not… focus on improving the quality of your trade ideas.

Then work on entry.

Then initial management.

And then ongoing management.

Find the first area that disappoints you. Examine why. Determine a course of action for the next 20 trade sample.

And repeat.

Happy trading,

Lance Beggs

 


 

It’s Not About Being Right

 

One of the great things about being involved in trading education is that it provides me with the ability to chat with a LOT of developing traders.

Common themes appear over time. This is one of them…

"Can you review this trade. It's a trade idea which I thought was good, but it just didn't work out."

They want to know where they failed with their analysis or decision making. They want to know what they did wrong.

But often, there was nothing wrong with their analysis or decision making.

Here's the reality of this game – we won't always get it right.

But we don't have to.

That is not what this game is about.

I can understand it. We're wired that way. We like to win. We don't like to lose.

We like to be right in our analysis and trade decisions. We don't like to be wrong.

And there's a whole technical analysis and trading education industry out there, which promises to "show you how to find winning trades".

But that's not what this game is about.

It's not about being right.

Not EVERY TIME.

It's about profiting over a SERIES OF TRADES.

A series that includes both winning trades AND losing trades.

It's about ensuring that when you are right you take as much out of the market as you can. And when you're wrong you cut the loss as much and as quickly as you can. So that, when the whole series of trades is done, the end result is a profit.

Let's look at a very short series of trades from Wednesday night. It's a sequence in Crude Oil which occurred in the hour immediately following the Crude Oil Inventories report.

This is a very low timeframe. And it's high volatility, fast pace stuff. Don't be put off by that if you trade other markets, other timeframes, or in fact other strategies. The concept still applies. It's not about being right. It's about managing the winners and losers such that you profit over a series of trades.

In this sequence, EVERY TRADE ENTRY DECISION I MADE, EXCEPT ONE, WAS WRONG.

But it still provides a profit.

It's not about being right!

This was the only entry decision that actually worked out according to plan

Arrgggggh! Wrong direction!

Wrong!

Wrong!

And wrong again!

And yet the whole sequence shows a profit!

Stop trying to be right.

Instead, try to find the places on the chart where you can win bigger (when right) than you lose (when wrong).

It's only a slight shift in perspective. But it makes a massive difference in how you see this game.

Happy trading,

Lance Beggs

 

Related Articles:

 


 

Two Attempts – Then Reassess

 

I see far too many traders destroy a session through fighting the market. Again and again and again.

Stop fighting the market

You need to break the pattern.

Try implementing this rule:

Two Attempts – Then Reassess!

 

After two attempts at a trade idea, if it hasn't worked, it's clear that something is not right. You're not in sync with the market.

Either:

  • You have misread the situation and you're wrong, or
  • Your timing is out (which still means you're wrong).

 

Break the pattern!

Two Attempts – Then Reassess!

Confirm your position is flat.

Step away from the charts.

Clear your mind.

Then reassess from first principles.

Try also to see the picture from the perspective of someone who might have the opposite bias to you. What are they seeing? Could they be right?

You may choose to get back in for a further trade (assuming session drawdown limits are not hit).

But you may also have prevented a meltdown; stopping a good trade idea which didn't work from turning into an absolute mess of a session.

Here's a recent trade sequence where I implemented this rule – Two Attempts – Then Reassess!

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Sometimes All You Need is a Slight Shift in Perspective

 

Our progress as we develop as a trader rarely occurs in a uniform, straight-line manner.

From time to time our development stalls, awaiting some trigger that shifts our perspective and allows us to see the game in a whole new way.

It's my hope that this article can provide at least one of you with your next paradigm shift!  🙂

So here's the thing:

Most of my trade ideas fail to achieve the expected outcome!

I made four attempts to trade this S/R level:

Context

Attempt 1

Attempt 1

Attempt 2

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CONSISTENCY – It’s a NECESSARY part of the process!

 

In a previous article we discussed the various levels you need to pass through on the way to achieving your long-term trading goals:

It's Time to Fight to Get to the Next Level

See here if you wish to explore this path in greater detail – http://yourtradingcoach.com/trading-business/its-time-to-fight-to-get-to-the-next-level/

And we also discussed the process required to drive your development through each of these levels:

Manage your growth and development via twenty trade groupings

This has been discussed a number of times, but I believe the flowchart was first used here – http://yourtradingcoach.com/trading-business/you-can-do-this/

20 trades is of course the absolute minimum required. Feel free to increase it if you prefer larger sample sizes. But do not reduce it. Any less that 20 and your sample size is too small to provide useful data.

Anyway, today I want to discuss a NECESSARY component of this 20 trade review process.

I had a chance to speak to a trader this week who was not progressing well, despite tracking stats for 20 trades at a time.

Here's the thing though…

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You Won’t Be Successful Until You’re Ok With Losing!

 

A VERY common theme amongst the email Q&A I get from new and developing traders is the frustration that comes from having a losing trade.

They typically want to know where they went wrong. Or what they should have done better.

Often though… there was NOTHING wrong.

Losses happen.

Seriously!

This is not a game of winning every trade.

Trades are not taken because of any belief in certainty; but rather because our assessment of the odds and potential payoff deems them to be worth the risk.

And success comes through managing both winners and losers, such that we profit over a series of trades.

Winners AND losers.

You will get both.

Sometimes they lose:

You won't be successful until you're ok with losing

You won't be successful until you're ok with losing

You won't be successful until you're ok with losing

You won't be successful until you're ok with losing

Sometimes they win:

You won't be successful until you're ok with losing

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Trading Failed Expectations

 

The following YTC Social Media post was just about a perfect example of the concept of trading failed expectations.

Obvious expectations - proven wrong

I received a question on the facebook post about trade entry. So let's look at the trade I took in this area – a test of Low-of-Day support.

Noting of course that there is one significant difference. I traded the 1 minute timeframe; not the 3 minute timeframe.

The 3 minute chart was used for the facebook and twitter post, simply because it beautifully demonstrated the concept that I was trying to highlight. It wasn't about my trade or my timeframes. It was about the general concept of looking for opportunity in places where "obvious expectations" are proven wrong.

The same idea applies on the 1 minute chart, of course. And it's the reason underlying my trade.

But this time… it's a WHOLE LOT MESSIER!

The good trades move quickly to the targets. But we don't always get good trades. And there's not much to learn from them. The messy trades though… much more common and much better for "lessons".

Here's the same test of Low-of-Day support in the one minute chart:

The same pattern on the 1 minute chart

The strong drive towards the support level appears as before, creating an expectation in the mind of many market participants for continuation lower. Personally, I expect that as well (YTC PAT Sixth Principle). And my plan is to wait for the break and assess the likelihood of either breakout failure or breakout pullback potential.

But when a move this strong stalls… and breaks back above the next TTF candle… well this is NOT what would be expected of a "strong" bearish market.

Let's wait and see what happens on a retest. If the retest continues with strength, I'm back with the original plan (watching for breakout failure or breakout pullback potential). But if the retest cannot continue lower… well I just love these setups. They can snap back higher quickly. So I'll be looking to enter LONG on a test of the support level, based upon the fact that the market has shown it can't go lower and the prior bearish strength was an illusion (liquidity vacuum perhaps!).

The market sets up that scenario nicely, as we see in the above image with the first failure to continue lower. Look for lower timeframe entry in the shaded region.

In this case though, there is no quick movement higher. And the market falls for a second attempt to break support.

This provides a second opportunity to get long, as the market is once again unable to continue lower. But it's quite a messy one with some chop at the turning point.

This is the reality of the markets. We all want trades that move quickly to their target. But that's not what we always get. You need to decide how you will deal with these "messy" setups. Some people prefer wider stops, to allow for chop and imperfect decision making at the entry zone, willing to accept the reduction in R:R potential. Others, like me, prefer to keep the stops tighter. But to be effective in that regard you need to be willing to scratch and re-enter. Don't let an initial failure prevent you from trading the second chance entry.

My entry is triggered on the lower timeframe charts (a combination of 15 second and YTC Scalper 2-Range). But for the sake of this article I'm going to show the 30 second chart, which displays all the information you need to see while also fitting nicely on the one image. So let's check it out.

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It’s Time to Fight to Get to the Next Level – Examples

 

Last week we added some structure to our growth and development as a trader, exploring how we could use our review process to drive our progress along the development pathway.

Check it out here if you missed it – http://yourtradingcoach.com/trading-business/its-time-to-fight-to-get-to-the-next-level/

It's Time to Fight to Get to the Next Level

The summary version of the plan was as follows:

(1) Find where you currently reside on the above pathway.

(2) Determine the Win%, Loss%, Average Win and Average Loss stats for your most recent trades (20 trade group… minimum).

(3) Identify the next level you hope to achieve.

(4) Determine how your step (2) stats will need to change in order to place you within the next level of the pathway.

(5) Immerse yourself into a review of the trades making up your most recent sample, to identify the reasons for failing to achieve the required statistical outcome, and the changes necessary to take you to that next level.

(6) Implement the changes and apply them as you trade your next group of trades (20 trade group… minimum).

(7) Repeat

 

Let's work through a couple of hypothetical examples, in order to make the process clearer.

Example 1:

(1) Find where you currently reside on the pathway.

You already know this. You're stuck at the very first stage. Sim trading with spot forex mini-lots… and still losing. Not losing badly mind you. But just slowly grinding your way to a smaller and smaller account.

No problems. That's absolutely fine. We all start there and build our way higher.

First things first though, you recognise that you need to quantify the problem and get some useable stats. So you document your plan as best you can and complete a sample of 20 trades.

The P&L clearly shows a negative result, down 100 pips ($100) over the sample of trades. So yes… it's confirmed… we're in stage one. It's all upside from here! 🙂

(2) Determine the Win%, Loss%, Average Win and Average Loss stats for your most recent trades.

Let's examine the stats a little closer though.

Win% = 55%

Loss% = 45%

Average win = 10.91

Average loss = -24.44

Expectancy = (Win% x Average Win) – (Loss% x Average Loss)

Expectancy = (0.55 x 10.91) – (0.45 x 24.4) = -4.98

You're losing almost five dollars per trade!

Ok this is not the end of the world. This is something you can work with.

(3) Identify the next level you hope to achieve.

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