More Trading Opportunities or Surer Trades - Which is Best

In talking with Kiki during our tweaking the FloBot's win rate, we had a discussion of whether it was better to have more trading opportunities or whether the trader should be more confident that the trade he was putting on was a winner.

I can make it pretty sure that the trade will be profitable, but then I will have very few trades. It's like having a slider between % win rate and profit per contract per week.

Let's say that a trader needs to make $500 per day trading.

Trader A can have a trading plan that says that he will only take trades that are 90% sure to make 1 point with a stop loss of 2 points and he will trade mechanically. That means that a trade will only make $46 per contract per trade. On back testing, Trader A finds that there were on average 10 trades a week of which 9 made $46 and 1 that lost $104, a net $310 per contract per week.

$500 earnings per day is $2,500 per week. Therefore to meet his goal, Trader A would trade 9 contracts per trade. His risk per trade is 9 times $104 or $936.

Now, let's look at my methodology. I'm Trader B.

I have about a 75% win rate on inside out trades. I trade in multiples of 3 contracts. My risk per trade (per every 3 contracts) is $312. My average net per day is over $900 per 3 contracts or $4500 per week.

So Trader A's Risk/Reward is 2.67 to 1

Trader B's Risk/Reward is 14.42 to 1.

Most traders focus their energies on deciding whether to take a trade or not even when it exactly meets their trading plan's rules. Why? To try and filter out a loser. For me, trying to be surer means less profit and really more risk - the risk of going broke as the statistics of the 90% of traders who do not survive, demonstrates.

On those figures it looks like being surer that a trade will be a winner is not the way to make money. As Pete said, "Get the trade on and manage it."

Looking at trade statistics is important to me as it helps me make decisions. Using a program like MSA from Adaptrade.com lets me do a lot of "what if's" when I want to tune a setup.