Seeking Feedback on My Trading Strategy: 52% Win Rate with 2:1 RR

[MannyW]

Sometimes I wonder if I’m on the right track, questioning if this is a waste of time or if my strategy is inadequate. I’m not sure why I feel this way. I’ve backtested my strategy on a few pairs and achieved a win rate of 52-58% over a range of pairs with a 2:1 risk-reward ratio for 2024.

It’s a straightforward strategy where I identify supply and demand zones on the 1-hour timeframe and then trade breakouts on the 5-minute timeframe after a BOS outside the filled zones. Instead of using supply and demand zones as reversal points, I use them as take profit targets and entry points for breakouts. Heres an example picture below.

1 Hour Zones

5 Minute Entry on BOS (Break-of-structure)

Could I get any thoughts or feedback on this strategy? I was thinking of implementing higher timeframe bias but I don’t know how I would introduce that maybe higher timeframe supply and demand zones. My Stop Losses are fixed to a 2RR no matter what, My SL is based on my TP level and entry level. Lastly I heard about the importance of trade management and was thinking of implementing it somehow, any ideas? Thanks so much.

[ProfesorPips]

do a back test

[declangrundy]

Although professor pips probably provided you with all the answers you need in his/her detailed, insightful and hugely useful feedback. Well done for taking the time.
I thought I would chime in.

I’m no expert. I am probably just the same as you, trying to believe in the trading system I have.

But one thing that changed everything for me was live trading an idea. Backtesting is good, essential, but it is historical data. Paper trading is also good, essential, but you have no skin in the game.

For me it is really useful to commit some money to an idea, smaller amounts obviously, but that way you can find out how you react in the same situation you backtested, but when it actually means something.

The strat itself looks good. 50% at 2:1 is profitable. So for me the next step is to up the anti.

Hope that helped.

[PDRInvLLC]

Regardless, bottom line:
• Use a tool or system that presents successful entry opportunities most of the time; and,
• Know your numbers.

Remember, too: The tortoise always beats the hare.

Combining the philosophies:
• .05% a day ≈ 12.75% a year;
• .10% a day ≈ 27.11% a year;
• .15% a day ≈ 43.29% a year;
• Etc, etc, etc…

Since trading is exponential and not multiplicative, it’s more important to report PROFIT/GAIN daily than it is to seek maximizing any study or indicator.

This simple concept will yield better long-term realized gains along with a better balance and quality of life.

[ProfesorPips]

@declangrundy maybe should I do all tests for @MannyW and give the results? NO ONE knows what change will be good for this system before tests. Time to back to school @declangrundy

[Obsy]

So you got a strategy, and this is yours. That’s wonderful. And it means that you are on your way to success. Now you need to maximize the potential of this strategy. Let me chip in based on what you have asked.

RRR : 3:1 is wonderful, but 2:1 is Ok. On a less than 70% win ratio, 2:1 will really test your patience.

Win Rate and backtesting : To improve your win rate, try to pay attention to the losing trades from your backtesting. What did they have in common, as against your winning trades. This will help you weed out setups you shouldn’t trade in the first place and improve your win rate.

Manual vs automated testing : try to automate your strategy testing as much as possible. Not all strategies can be automated though, but manual backtesting usually has emotional and sentimental biases that handicaps your objectivity. You may also miss some setups when manually backtesting. I usually try as much as possible to automate my backtesting to ensure i am thorough and get the right picture of my strategy.

Only trade where you have backtested. : If your winrate is based on 5 currency pairs, trade those currency pairs only. Dont trade on currency pairs you have not backtested on. Focus on currency pairs that have healthier win rates.

Trade management : this should be part of your backtesting. I dont believe in universal trade management. For instance, some strategies allow you to move your SL to break even when your trade reaches 1%, but you have to backtest this on your strategy to ensure you remain profitable when applied.

All the best

[tommor]

Performance sounds fine, well worth using. And developing if you can.

What always concerns me with strategies that depend on how you mark up a price chart is whether you will mark a similar chart up in the same way tomorrow and the next day and every day. Prices are scientifically objective information - zones and structures and regions and areas and trend channel boundaries and trend-lines and all the rest are artefacts.

[MattyMoney]

I think you have the right idea here. This is similar to the Break & Retest strategy that I posted, but with a couple of differences that I’ll mention.

First of all let’s clear up Risk:Reward ratio as this is a common mistake in these forums.
Your Risk is 1 because you are risking $1
Your Reward is 2 because you would be rewarded with $2
Therefore your Risk:Reward ratio is 1:2

You don’t have to have a strict 1:2 Risk:Reward ratio. If you back-tested this you would probably find your winning percentage much higher using 1:1.5 or even 1:1. But I wouldn’t know, I don’t back-test, which is probably a fault of mine. If this strategy does have a 1:2 R:R when live trading, then you’re laughing.

Also, you could reference a higher time-frame for the longer term trend direction so that if you are trading against the trend you might consider reducing your position size or R:R to reduce your risk.

Keep up the good work though and don’t over complicate it. You are on the right track.

[TYGMedia]

Hi @MannyW, I’m agree with @ProfesorPips.

To have a workable strategy need 3 steps (minimum, the more the merrier ).

1. Observer the repetitive patterns.
2. Back-test to find patterns stats.
3. Design money management that fit our desires, base on the stats.

You spot a good patterns, without doing back-test (at least 5 years), you won’t know if the patterns you spot is a temporary winning one. When it’s used for long time, it’s probably a “killing me softly” type of pattern. Or probably you can find out on what condition a pattern can be used. Many patterns behave in this way, you only know it by back-test it. Do the back-testing by self, giving assurance and confident with what you do. You may ask others for confirmation.

After you have back-tested, you can see the statistic data. This is the key ingredient to develop your money management (MM). Make sure the MM have to match your profile, budget and mentality.
Example, during back-test you see, the profit factor is bellow 1.0, that means you will hit more SL than TP. It doesn’t mean the strategy is bad. You need to optimize the RR. Instead of using 1:2, probably it has to be 1:10. Analyze if it can be done. I have scalping strategy, I will hit 8 consecutive losses before I hit a win in a day. Since the SL only costs me 50 USD, 8xSL will be 400 USD. Once I hit TP, I get around 500 USD. On certain condition, I dare to double up my volume when the formation is good, it will boost my overall profit.

About your strategy, if you are looking for breakout, using SMC, you can look for orderblock. Make sure the FVG has good distance to take 2RR. Judging by 5M chart, it’s not so reliable. I blindly tested it (without filter), the win rate less then 50%. But if you only do long, since BOJ did less intervention, it was better. Now, the situation has changed a bit, US Presidential Election, etc, I don’t see JPY pair is attractive. Good instrument have to be up and down, it’s not one straight line to the MOON kind (exception to index, stock, metal and energy).

Another perspective, if you take market structure from H1 or H4 chart to trade M5 chart, it seems quite potential, the win rate is better, but you will have less opportunities. The 1:1.5 is the most optimal one. Or you can try to close half when it reach 1.5 RR and do trailing up to 2.5 RR for the next half after you have reset your SL to zero.

[Airpip]

Hey @MannyW , it’s natural to question your strategy, especially in trading where uncertainty is part of the game.

I would say achieving a 52-58% win rate with a 2:1 risk-reward ratio is pretty solid. And, the way you use supply and demand zones as breakout points and take profit targets is a solid and credible technique.

“My Stop Losses are fixed to a 2RR no matter what, My SL is based on my TP level and entry-level.”

Is there any solid reason for fixing the RR to 2? If there is then it is fine otherwise IMO, tweaking your risk-reward strategy upwards for better profitability might place you in a better zone.