I’m a mechanical trader and currently trading with 5%ers as PM1. I have 2 strategies I use with them which has 55% and 60% win rate, respectively. Now, I was able to create a new strategy but only has a 40% win rate and it gives a decent result. 21% every 6 months. I’m actually having some doubts using it for some reason due to a low win rate as I actually think that overall it would go against me. I don’t know. Maybe I’m just overthinking it. What criteria of a trading system do you guys normally look at?
How many months/years has each strategy been traded on a live account- what does your risk of ruin table look like, sharpe ratio, and max drawdown?
Being brutally honest, I think you’re just asking the wrong question(s).
Define/compute the below for an objective way to analyze your portfolio- share it with us and we’ll have a more thoughtful conversation:
-Risk of ruin
-Max drawdown
-Sharpe ratio
-Avg winner $/% amount
-Avg losser $/% amount
-# winner / # loser trades per month
Hi ChampionChan, and welcome to the forum.
The only criterion that needs to be used is to be able to demonstrate an edge. The first goal should be “how not to lose money”. I have traded on and off, and unsuccessfully, for some years now, and I am back again with fewer rules and less complexity. To answer your question, I would be satisfied to demonstrate that overall, the “edge” I could achieve, after costs, would be 1% of total trades. You won’t get rich on that edge, but you will also never blow your account if you stick to risk management and position sizing. One of the most memorable books I read on the subject which now forms the basis of my strategies and plans (not just for trading, but for all investment areas) is Van K Tharp - Trade your way to financial freedom. It is a bit on the heavy side arithmetically, but for me it was the perfect book to get rid of the chaos and distill the essentials. Best of luck with trading.
Hello. It means that I trade using EAs that I have coded. I only risk 0.3% per trade so here are the details:
Max Drawdown: 3.25%
Avg winner: $201.31
Avg loser: $30.17
On average, it takes 9 trades per month, 3 winners, 6 losses. So actually, the win rate is way below 40%. It’s only 31.48% overall. Not sure how to get Risk of Ruin and Sharpe Ratio but I look it up.
Thanks for sharing. Coincidentally, I am reading the book right now but I’m only at Chapter 4.
That’s true. I actually learned that when I joined 5%ers where they set a max drawdown of 4%. The goal is now to lose more than 4% and still achieve the profit goal.
@FOREXunlimited, sorry I forgot to answer some of your questions. PM1 is the next stage after the evaluation from 5%ers. I’m trading a $40k account with them at the moment. I’ve been using the 2 strategies for the past 7 months only but so far, it has been giving me profits every single month. It’s the same strategies I use with 5%ers when I tried their evaluation last March. My drawdown is not really big as well since I only trade 0.5% of the account balance. I don’t know if the strategy will continue to work but that’s why I’m constantly searching and coding strategies.
Thank you for sharing- those numbers look great! So, this is your analysis for the last 7 months? What’s the STD DEV of your “trades per month”? And- your risk of ruin is near 0.00% which is great! This is due to your high payout ratio (> 5:1). What this translates to: Your strategy isn’t that accurate, but when it’s right, it’s REALLY right. Which is great! It means that you are letting your profits mature, and cutting losers quickly- one of the hardest things to do in trading.
Your sharpe ratio is well over 1 as well, which is another sign of strength.
That max drawdown is enviable, too!
Hello @FOREXunlimited. Sorry I think I explained it wrongly. The numbers I gave are from the EA I’m concerned about. I haven’t traded it yet, those are backtest results. It’s different from the 2 EAs I’ve been trading for the past 7 months. But anyway, from what I understand, it looks like the numbers will still be good, right? Regardless, if the system has a low win rate? The Std Dev is 1.77.
This is not true so be careful. All “profits” are 100% not created equally. @ChampionChan you are on the right track so don’t get disctracted.
This is a problem. You cannot expect the same exact results between backtesting and live trading. Over a long enough time horizon, maybe there will be some correlation- but the problem is that the market can do irrational things longer than you can continue to fund your account.
So, what are the stats for the live trading account you’ve been using for the past 7mo?
The reason for me creating this thread is to ask if people are willing to trade systems that has low win rate. It was due to the EA I have created that has a low win rate as explained above. I’m not sure if the 2 EAs I’m live trading have something to do with it. The 2 EAs gives me 57% win rate overall which means that more winners than losers. I think personally I prefer those kinds of systems but then I can’t be close minded to systems with low win rate. Well, I guess that answers my question. I will give it a try and see how it goes from here.
I don’t see any problem with this. As long as you trade small % of your account balance, this won’t be an issue. On my issue, I only trade anywhere from 0.3% to 0.6% of my account balance. It will take a while for my account to blow up. I’ve blown few accounts before and I learned already from those mistakes. Good luck with everyone’s trading. Hope we will be profitable traders.
I am happy to see you are reading Tharp. From your explanations to others, it is obvious that you know what you are doing, and that you have great patience. Unlike Covid 19, we all strive to ensure that our “R” is demonstrably greater than one. That pun will be lost on anyone who did not know that Tharp uses “R” to denote the effective position size via “ratio of take profit to stop loss”. I wondered if the government person who used R for Covid 19 had also read Tharp
Yes, @Mondeoman. I’ve read that book as well that talks about R multiples. I forgot what the title was but that’s the first book I read from Van Tharp. Something to do with Position Sizing techniques. I should read that again. That’s a good book as well.
Alright then. Not sure why but here are the numbers.
Max Drawdown: 4.32%
Win Rate: 56.49%
Profit: 24.32% 87/154 trades
Avg Winner: $109.27
Avg Loser: $58.20
I was risking 0.5% on 2 strategies. But I change my risk %. One still has 0.5% per trade, other is 0.6%. Planning to use the other EA that has 31% win rate and I will risk 0.3% only. I will open a new account for this new EA.
At the moment I only use signals with a proven and replicable 76.7% Win Rate with trades that have a Risk:Reward 2:1. (Or better if the Price Action justifies tighter Stops)
With those trades 66.7% wins are required to break even so my signals should have 10% edge.
The downside is the low frequency of signals: circa 180 a year. Across 28 Pairs, Silver and Gold.
Check this out. The Definitive Guide to Position Sizing: How to Evaluate Your System and Use Position Sizing to Meet Your Objectives by Van Tharp. This is the one I’ve read. You spoiker! Hahaha. Just started with Chapter 4 so R multiple will be on the way.
