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.