How Important is Your Win-Loss Ratio?

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How Important is Your Win-Loss Ratio?

How important is your win loss ratio?

In today’s article, I want to look at the win to loss ratio and its importance to a trading system.

Let me start by posing a conundrum; would you prefer to walk down the high street with a verified badge on your chest showing off a 92%-win loss ratio or would you prefer to drive down that high street in a top of the range sports car?

The bottom line is that the win loss ratio is just a measure of a system and we should only focus on being profitable.

What happens if we get fixated on our win ratio?

Focusing on our win ratio can result in premature exits from profitable trends, and holding losing trades far too long.  Systems based on a high win loss ratio are also higher risk. They usually result in few losses, but these losses are extremely large and can massively damage your account.

If we get emotionally upset by taking a loss then it suggests that we are more interested in being right than focused on being profitable.

What win ratio should we aim for?

The answer in short is that we should not focus on the win loss ratio as this is only a measure of our system. Our focus should be entirely on our trading rules; to make a profit.

How then should we use our win ratio?

Different trading systems need different win ratios to be profitable.

As an example, if a system has a win loss ratio of 2:1, and we risk $50 per trade, then a win will produce $100. In this scenario, so long as we have a win ratio above 34%, then we will be profitable.

To demonstrate this let us say that we take 100 trades and win 34% = 34 trades.

Wins = 34 x $100 profit = $3,400
Losses= 66 x $50 loss = -$3,300
Total profit $3,400 – $3,300 = $100.

Now, taking 100 trades to only make $100 is not profitable. So setting a minimum 50% win ratio would be more reasonable to trade this system, which yields:

Wins = 50 x $100 profit = $5,000
Losses= 50 x $50 loss = -$2,500
Total profit $5,000 – $2,500 = $2,500

We then test the system over 10 rounds of 100 trades and find out if the system is profitable.

If the system is profitable, we then focus entirely on the trade rules and executing the trades. We are not concerned about losing trades since we only need to win 50% of our trades, and that the system will provide that.

Closing out trades the Hawkeye Tomahawke FX Suite

In the Tomahawke scalping system, the strength of a currency can quickly change since we are trading fast time charts. If we focus on the current combined profit of all trades at one time, and reach our profit target, we should be happy to close out the trades, even if 4 are profitable and 2 are losing trades, as shown in the example below. Don’t be concerned that the -$5.04 trade would be counted as a losing trade as its value is insignificant to the overall profit.

Tomahawke Win Loss Example Chart

In summary, my hope is that this article has helped you think about win loss ratios in trading. Understanding win loss ratios will aid you in becoming a better trader.

If you would like to find out more about the Hawkeye Tomahawke system, please visit us at https://www.hawkeyetraders.com/tomahawke-forex-trade-room/

 


 

Learn more about volume and volume spread analysis, and see more examples of live trade setups in the next free LIVE Hawkeye Demonstration Room held every Wednesday. Open to all. Click this link for more information or to join us in class.

Learn to trade the Hawkeye way.

Good trading,

Randy Lindsey
Hawkeye Traders, LLC

7 Secret Tips Successful Traders Practice

What separates successful traders from the rest of the pack? Why is it that only a mere 5% really make it in trading? How did these traders do it? While all successful traders have their proven trading strategies and systems to call and manage their trades, they know there is one more important thing to do: focus on improving themselves.

Successful trader

Because the trader is the ultimate resource that can act to produce the desired trading results, he or she must ensure this resource is primed and efficient to perform its best at trading. As such, successful traders pay great attention to the points listed below which elucidate how they go about their trading business.

Treat Trading Like A Business

Top traders know that trading is a serious business and they accord it such importance by considering key factors that affect all businesses. From a trading perspective, these factors include: writing a detailed trading plan; starting out with an appropriate trading account size; knowing the various costs of trading; sustaining and growing the account; and acquiring the right trading knowledge, skills, software and equipment.

Keep The Ego In Check

Trading mistakes can arise from emotional responses directly linked to one’s ego. A trader that needs to be right will let the ego prevail and inflict ruin to his/her account, always trying to will the market which he/she denies cannot be controlled. Being egoistic also means not acknowledging one’s trading mistakes and therefore not learning from them. For example, the ego will egg the trader on to hold a losing trade instead of taking the correct action of cutting loss at the appropriate time.

Be Disciplined In Every Trade

The item that directly affects your bottom line is trading discipline. The serious trader follows his/her trading plan to the letter, and adheres to it as much as humanly possible (Note: even successful traders make mistakes). Trading discipline includes protecting trading capital and sensibly allocating risk per trade; only taking trades that satisfy risk/reward parameters and set up correctly; staying on the sidelines at all other times and not forcing a trade; cutting losses quickly via pre-determined stop loss levels; letting a good trade ride but protecting a winner from turning into a loser. In essence, being disciplined allows the successful trader to show profits consistently and rein in losses should any trading period turn out to be a rough ride.

Protect Trading Capital

The serious trader treats his/her trading money very seriously. It is what enables trading to be done. Additionally, it is also the objective of trading: make winning trades to grow the money. Thus, the successful trader will guard his/her capital zealously, ensuring that risk per trade is controlled so that losers only erode the account, not chew a hole in it. This assures the trader that his/her business can continue, today, tomorrow and into the future.

Don’t Marry Your Trades

The serious trader knows that a single trade does not determine his/her trading success. He/she is fully aware that any trade could result in a loss. Therefore a conscious act of removing any emotional attachment to every trade is essential. While staying disciplined entails waiting for the good trade entries, this wait and eventual trade entry do not compel the successful trader to think that he/she must be right in taking that trade. As such, should the market go against the trader and he/she sees prices approaching the stop loss level, the trader fully accepts that losing is a real possibility and does not rationalize further. The novice trader, in contrast, will often be tempted to move the stop loss further out so as to let the trade have “more room”. Such a trader feels the need to be right and doesn’t know how to walk away from a loser.

Be Realistic, Practical And Persevere

Being realistic is what separates the men from the boys when it comes to trading. The successful trader does not have a get-rich-quick mentality and knows it is hard work; thus he/she treats trading as a business and has the mental fortitude to stay in the game for as long as it takes. Perseverance is a key asset. The trading discipline imposed in the trading plan reinforces this. It results in a personal belief that it is possible to succeed in trading. The serious trader knows he/she is psychologically guided by his upbringing, attitudes and experiences regarding money and success. He is also practical by admitting these limitations and works to break free from such self-defeating barriers. Pursuing the right education from other successful traders are good solutions to the problem.

Know Yourself And Let Others Help You

The successful trader knows his/her strengths and weaknesses when it comes to trading. They are not shy to ask for help. While knowing there is no shortcut to success, the trader often pursues education from the best mentors to acquire the right knowledge and skills essential to becoming successful at trading. As part of the trading plan, the serious trader keeps a trading journal and reviews this daily to learn from past mistakes and internalize winning trade executions.  Also, a mentor can use the trade journal to help the trader make specific and personal improvements.

You may need the help of a trading coach.  Let Hawkeye Traders help you get back on the path to consistently profitable trading. Contact us today at [email protected] and ask about our Trader Coaching Program. You’ll be glad you did.

Trade safe!


Learn more about volume and volume spread analysis. See more examples and live trade setups as well in the next free LIVE Hawkeye Demonstration Room. It is held every Wednesday and is open to all. Click this link for more information or to join us in class.

Learn to trade the Hawkeye way.

Randy Lindsey
Hawkeye Traders, LLC

Defining Risk in Your Trading

Do you know exactly how much you risk each time you place a trade?

In his recent article ‘The Commitment Secret’, Dr. Kenneth Reid challenged us to commit to an ongoing process of self-improvement. In today’s article, we want to consider the topic of trade risk.

Do you clearly define the point at which you will exit a trade if it goes against you?

If we trade without pre-defined exit points, our risk is infinite. As such, it is impossible to calculate the financial risk of that trade, and exposes our entire account to risk. Not only is this extremely bad for our pocket,  but it’s also a source of a immense emotional pain and psychological damage.

In this scenario, where would we exit the trade, and by then how big will that loss be?

Do you clearly define how much of your account you will risk on each trade?

If I enter a trade with the same lot size for each currency pair, then I am not defining my risk. Why? Because each currency pair has a different cost per pip. For example, one standard lot on the EURGBP is around $12.80 per pip, whereas one standard lot on the GBPAUD is around $7.50 per pip. So the risk on the two trades is not the same with an equal lot size.

Why should we define the risk on each trade?

If we consider how we bet on a horse race then the answer is quite simple.

The odds are calculated on the probability of a horse winning and we use those odds to define our trade parameters. So, for example, if the odds are 10:1 and I bet $1, then a win would return my $1 stake and $10 in profit. However, if my horse does not win then the bookie keeps my $1 bet. In this scenario, I fully understand that I will lose $1 if my horse does not win and I have considered it a worthwhile trade as I have the chance to make $10 by risking $1.

Now, if the bookie couldn’t tell me how much I will lose if the horse fails to win, but that it might be all the money in my account, (which, incidentally, he holds for me in his own bank account) would I then take a bet on that horse? I certainly wouldn’t – but yet, surprisingly, many traders do.

What are the benefits of defining and accepting the risks on each trade?

How about I say you can be the bookie (to define the trade odds) and then also the customer to take that trade? Well, that is just what we do when we trade.
So, for example, I could set a stop loss at -50 Pips and take profit at +100 pips (1:2 risk to reward) and then risk $100 on the trade. If the trade stops out I lose $100 but if the trade is a winner I will gain $200.

But just remember, as the bookie or as the customer, I have no way to determine or influence the outcome of the race, I am just defining my trade parameters and must accept the outcome.

The skill in trading is then to find high probability trades and to pre-determine the exit, which is the subject for another day.

How do we determine the risk in Hawkeye Tomahawke FX?

Hawkeye Tomahawke Chart

Using the Tomahawke method, we use a trade execution tool to place our trades quickly, as we are trading the shorter time charts.

This tool makes us place a stop in the charts. We think about and determine the point to exit that trade should it go against us. In the settings, we also pre-determine how much of our account we wish to risk on each trade (normally  ½ percent on each trade).

When we take a trade, the software automatically calculates the lot size given the number of pips to the stop and the total value we are risking on that trade. So, for example, if we are risking $100 on a trade with a 10 pip stop, then we risk  $10 per pip. The software calculates that as a lot size and enters the trade. Should the stop be hit, we will lose $100 and no more. We accept this as our defined risk.

I hope this article helps you to think about risk in your trades and how to become a better trader.

 


 

Join Me in the next free LIVE Hawkeye Demonstration Room held every Wednesday at 9.30am EST US. You will learn more about volume and volume price analysis and see more examples and live trade setups. It is open to all.

Click this link for more information or to join us in class.

Learn to trade the Hawkeye way.

Good trading,

Randy Lindsey
Hawkeye Traders, LLC

Don’t fall for the Apple hype… yet.

If you’re fueled by high expectations of Apple stock, Hawkeye is here to deflate the Apple-hype balloon.

While the iPhone maker has seldom reported negative figures in a decade, this week, Apple revealed typical congestion and a pause in downtrend.

For there to be a new weekly uptrend, the stock would have to break above $466. Refer to the following chart for the continued discussion:

$AAPL monthy chart shows narrow bars on low volume - an indication of accumulation.
$AAPL monthy chart shows narrow bars on low volume – an indication of accumulation.

Point 1
On this particular day, the daily shows declining volume which translates to stopping volume in the existing weekly and monthly downtrend.

Also, the daily trend dot is rolling over showing lack of momentum.

Point 2
The weekly trend does not show advancing volume, therefore negating a probable uptrend.

Point 3
The monthly chart shows narrow bars on low volume; this normally indicates accumulation which will manifest on the faster timeframes as it develops.

In conclusion, there is too much risk to take a new long till increased buying volume occurs on the weekly chart.

Wait for a low risk entry when the daily and weekly indicate a new uptrend or short when the daily resumes in the direction of the weekly and monthly trend, both low-risk entries.

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