It sounds unbelievable, because all these while if we want to trade successfully, we should wait for a perfect setup and perfect setup will often reduce the number of trades. A typical example will be adding more filter and rules to filter the whipsaw, hence, to reduce the number of trades and increase of success rate. Let’s look at the numbers, please see attached Image 1.
If we wait for a perfect setup in a month just 1 trade and our winning rate is 100%, we risk 2% per trade our net return will be 2%. However, if we have 20 trades in a month and our winning rate is just 60% with 2% per trade our return is 8%!
If we run this for 2 years, the following is the result, please see attached Image 2.
If you are still looking for a 100%-win system you totally miss the important point of trading. The inner heart in you wants to beat everyone and proof that you are smarter instead of make money consistently in the market. The lesson we can learn from this are:
1. You do not need to have a 100% winning rate system to make money in the market.
2. You must have a well defined probability-based trading strategy. The above will fail if you keep switching strategies or trading decision is based on discretionary basis.
3. Your risk per trade must be small so that your account can handle the drawdown of the strategy.
4. You must take every trade when it comes and do not miss it. Missing it will cause you absorb all the losing trades and missing winning trades. The fact is you will not know the outcome of your next trade.
At StreetQuants, we provide a probability-based trading strategy which combine quantitative analysis and artificial intelligence model to help trader to build a profitable strategy.