Hi everyone, how consistent losses would be considered a flawed forex trading system ?
Losses aren’t as important as balances.
If your account balance goes down instead of up, it’s flawed.
You can have a system that wins trades over 90% of the time, and still lose money. And you can have a system that only wins 10% of the time, but generates profits.
It’s the bottom line that tells you if it’s flawed or not.
Yes i have back tested my system 2 years and forward tested 2 months. I have a 47% accuracy rate with my bottom risk to reward being 2/1. I have found that the most important thing in forex is the risk to reward.
I’d still recommend testing for at least 6 months forward to get an accurate representation throughout different market conditions. If it’s these past two months your forward tested, you may find your system works in volatile and fear-driven markets (eurozone issues).
Is the system profitable within those 2 months you’ve forward tested?
Master Tang is right. My Sunday Breakout system only has a 20%-25% win rate, and has a record of 9 loses in a row (I think, I’m too lazy too look it up right now), but it’s been profitable for years.
Think of the lottery… Imagine you buy 1 lottery ticket a week for 20 years and then win the jackpot. You have over 1000 consecutive losses and your win rate is 0.01%, but you’re rich!
Yes its been profitable these past 2 months, i really like this system. Do you think i have wasted my time back testing ?. What does back testing tell me ? i have heard a lot of different opinions, very different opinions?
You haven’t wasted your time at all! Backtesting can tell you with 100% certainty if a system doesn’t work, but it can only tell you that a system MIGHT work in the future.
The waste of time (and money) comes in when people think backtesting for 2 months proves a system is good!
If you have 2 months of good backtesting, that means the system is worth your time to forward test, either on demo or with microscopic amounts of money.
If you mean that:
[ul]
[li]your win-ratio is 47% — that is, 47% of your trades are winners and 53% are losers, and
[/li]
[li]your average loser is twice as large as your average winner (which is what a risk/reward ratio of 2/1 implies)
[/li][/ul]
…then, you have a losing system. — Long term, your system will lose $2.26 for every $1 it earns.
If you are using the terms [B]47% accuracy rate[/B] and [B]risk to reward being 2/1[/B] to mean something else, please explain.
Yes i got it wrong my gainers are twice bigger than my losers. and i only risk a maximum of 18 pips.
I’m glad to hear it.
With a win-ratio of 47%, and a risk/reward ratio of 1/2, your system will earn $1.77 in profit for every $1 in loss.
Thanks for explaining.