# What Win Rate can you live with?



## JJZ (12 February 2016)

I have been reading, back testing and learning every chance I get.   I am curious to know what sort of win/loss ratio are people comfortable with or what they are shooting for?  

It appears to be a very individual thing, personally I am more conservative but what is conservative ratio?

Hope I am making sense, if I am back testing and getting say a 60% Win 40% Loss ratio will I struggle to deal mentally with the losses on a day to day basis? 

Obviously the results from back testing are not 100% reflective of real trading results, but I curious of whats realistic when trading in real life. The last thing I want it to make the move to real trading with unrealistic goals.

What do people find acceptable?


Thanks
JJZ


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## skyQuake (12 February 2016)

JJZ said:


> I have been reading, back testing and learning every chance I get.   I am curious to know what sort of win/loss ratio are people comfortable with or what they are shooting for?
> 
> It appears to be a very individual thing, personally I am more conservative but what is conservative ratio?
> 
> ...




I think that'll depend more on timeframe and drawdowns.

If your system is say 60/40 and trades 100 times a day on futures (assume similar gain/loss) then its pretty easy to watch your acct tick up every day with minimal daily or weekly drawdowns.

However if it trades 9 times a year then you could be sitting in drawdowns for months or years... Personally, thats not something I can live with.


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## JJZ (12 February 2016)

skyQuake said:


> I think that'll depend more on timeframe and drawdowns.
> 
> If your system is say 60/40 and trades 100 times a day on futures (assume similar gain/loss) then its pretty easy to watch your acct tick up every day with minimal daily or weekly drawdowns.
> 
> However if it trades 9 times a year then you could be sitting in drawdowns for months or years... Personally, thats not something I can live with.




Thanks skyQuake,

Good Point! Never even thought about considering time frames.  

I would be trading EOD, ASX stocks, shooting for 40-80 trades a year.


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## Gringotts Bank (12 February 2016)

70% is the current "1 minute mile" for systems traders.

This topic has been trending on Yahoo AB lately.

70% for MR.  Maybe 40-45% for trend following.


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## Wysiwyg (12 February 2016)

Win/loss ratio has nothing to do with profitability so why waste time considering this metric. (Tech/A would have already posted this)


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## Roller_1 (12 February 2016)

Win/loss ratio is the amount you win when you win and win% is how often you win.. 
I think you will find the win % will depend on what style of trading you are doing. If you are looking for 40-80 trades a year, i am guuessing your holding times will be a decent amount of time then you might struggle to get >60% win rate as GB said.


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## Gringotts Bank (12 February 2016)

Wysiwyg said:


> Win/loss ratio has nothing to do with profitability so why waste time considering this metric. (Tech/A would have already posted this)




A high % winners is always desirable because it shows you real edge, ie. repeatability.  It helps psychologically.  Good Sharpe ratio is impossible without a high WR%.


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## Wysiwyg (12 February 2016)

Roller_1 said:


> Win/loss ratio is the amount you win when you win and win% is how often you win..
> I think you will find the win % will depend on what style of trading you are doing. If you are looking for 40-80 trades a year, i am guuessing your holding times will be a decent amount of time then you might struggle to get >60% win rate as GB said.




Sorry but you are wrong. 



> DEFINITION of 'Win/Loss Ratio'
> A ratio of the total number of winning trades to the number of losing trades. *It does not take into account how much was won or lost simply if they were winners or losers.*
> 
> Read more: Win/Loss Ratio Definition | Investopedia http://www.investopedia.com/terms/w/win-loss-ratio.asp#ixzz3zw20G3yr


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## Gringotts Bank (12 February 2016)

Gringotts Bank said:


> A high % winners is always desirable because it shows you real edge, ie. repeatability.  It helps psychologically.  Good Sharpe ratio is impossible without a high WR%.




In addition, walk forward analysis of low win rate systems often fail on unseen data.  High WR% systems are much more likely to pass this test (once again, because a real edge has been discovered).


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## Trendnomics (13 February 2016)

Guys, there is a lot of misguided information in this thread.

Let me simplify this matter with the following basic positive expectancy chart:



	

		
			
		

		
	
:

The red zone is the zone of operation for most retail traders (i.e. negative expectancy);
The large green zone is the zone of operation for trend following (or other similar strategies - less than 50% win rate with positive expectancy);
The small blue zone is the zone of operation for mean reversion (or other similar strategies - more than 50% win rate with positive expectancy); 
The black zone is the zone of unrealistic expectations - "crystal-ball trading" (no long term records exist of a singular mechanical strategy falling in the "black zone").
For me green is easier to maintain than blue - particularly for a retail trader.


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## minwa (14 February 2016)

Trendnomics said:


> [*]The black zone is the zone of unrealistic expectations - "crystal-ball trading" (no long term records exist of a singular mechanical strategy falling in the "black zone").



Really ? If I am reading it correctly you are saying nothing over 50% win rate and with a higher than 1:1 RR ?


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## Trendnomics (14 February 2016)

minwa said:


> Really ? If I am reading it correctly you are saying nothing over 50% win rate and with a higher than 1:1 RR ?




Correct, there is no mechanical system (or purely systematic trader) with a statistical significant record, that falls in the black zone. I'm sure there are short term "excursions" into the black zone, in particular for discretionary traders (i.e. lucky gut feelings), but over the longer term you require significant predictive capabilities to remain in this zone.


Trend-following: Loss exit (stop/criteria) smaller than profit exit (criteria) - let profits run take losses early (~1L:3P) - losses occur more frequent (more than 50%);
Mean-reversion: Loss exit (stop/criteria) larger than profit exit (stop) - take profits early loose less frequently (~2L:1P) - losses occur less frequent (less than 50%).

Hence, these systems have no predictive elements - the win rate is entirely dependent on the ratio of the loss exit stop/criteria and the profit exit stop/criteria.


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## minwa (14 February 2016)

Trendnomics said:


> Correct, there is no mechanical system (or purely systematic trader) with a statistical significant record, that falls in the black zone. I'm sure there are short term "excursions" into the black zone, in particular for discretionary traders (i.e. lucky gut feelings), but over the longer term you require significant predictive capabilities to remain in this zone.




You haven't looked hard enough. For pure mechanical systems, Larry Williams for example have back tested systems with higher than 50% and 1:1 for 20yrs+. Definitely more out there.


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## Trendnomics (14 February 2016)

minwa said:


> You haven't looked hard enough. For pure mechanical systems, Larry Williams for example have back tested systems with higher than 50% and 1:1 for 20yrs+. Definitely more out there.




The irony of using Larry Williams as an example of a "black zone" trader is astonishing. 

Some information on him (note that I don't support SchoolofGann - but the information they have gathered is rather interesting):

http://www.schoolofgann.com/LinkClick.aspx?fileticket=RqQnbmNqeLs=


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## minwa (14 February 2016)

Trendnomics said:


> The irony of using Larry Williams as an example of a "black zone" trader is astonishing.
> 
> Some information on him (note that I don't support SchoolofGann - but the information they have gathered is rather interesting):
> 
> http://www.schoolofgann.com/LinkClick.aspx?fileticket=RqQnbmNqeLs=




I see Larry (and his daughter who traded Larry's newsletter) winning one of the most oldest and prestigious trading competition, not any Gann trader.

To quote that link _"Let's look at Larry's world trading win in 1987 turning $10,000 into $1 million. It didn't happen without fraud. If you can make 11,000% why do you need to trade other people's money? Why isn't he on Wall St earning $500 million like the highest paid fund managers who return 24-35% PA"_

This is obviously written by some idiot who thinks managing massive funds should be traded like a trading competition. Doesn't understand leverage/scalability/psychology/competition at all.

All that aside, his system are purely mechanical, Tradestation stats, the codes you can put into your own Tradestation and it will the spit the same results over 20+ years backtest. 50% win, higher than 1:1. His system isn't even that good, there are better ones out there. Saying they don't exist just because you haven't found any is ignorant. I believe even on this forum tech/a probably has something similar. Having 50.01% and 1.01:1 isn't even impressive, I wouldn't consider it "black zone".


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## Trendnomics (14 February 2016)

minwa said:


> I see Larry (and his daughter who traded Larry's newsletter) winning one of the most oldest and prestigious trading competition, not any Gann trader.
> 
> To quote that link _"Let's look at Larry's world trading win in 1987 turning $10,000 into $1 million. It didn't happen without fraud. If you can make 11,000% why do you need to trade other people's money? Why isn't he on Wall St earning $500 million like the highest paid fund managers who return 24-35% PA"_
> 
> ...




Larry is an excellent promoter and author, but I question his true trading ability (look at his past fund failure and lack of transparency). 

Tech/A was a systematic trend-follower (i.e. Tech Trader 2001-2007) and at the moment a discretionary trader (as I stated before I'm sure there are short term "excursions" into the black zone for discretionary traders).

If you can list better examples or provide long standing *actual trading records* of "black zone" trading, then please do.


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## minwa (14 February 2016)

Trendnomics said:


> Larry is an excellent promoter and author, but I question his true trading ability (look at his past fund failure and lack of transparency).
> 
> If you can list better examples or provide long standing *actual trading records* of "black zone" trading, then please do.




If winning two third party verified trading competition is not some hint or at least capable trading then the only only thing able to convince is if he traded right infront of your eyes. Not gonna happen so nothings going to convince you.

Now you want to see actual trading records. Almost none exist on the internet that are auditted so nothings going to convince you again.


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## Boggo (14 February 2016)

Trendnomics said:


> Correct, there is no mechanical system (or purely systematic trader) with a statistical significant record, that falls in the black zone. I'm sure there are short term "excursions" into the black zone, in particular for discretionary traders (i.e. lucky gut feelings), but over the longer term you require significant predictive capabilities to remain in this zone.
> 
> 
> 
> ...




Yes.

My systems are disabled at the moment with an index filter.

For the report below I have disabled the index filter and ran the backtest over the last five years of data up to 31st Jan 2016.

It can still make double digit profits with over 60% losers as in the comment above that I have highlighted.

(click to expand)


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## minwa (14 February 2016)

Trendnomics said:


> If you can list better examples or provide long standing *actual trading records* of "black zone" trading, then please do.




From Myfxbook, lots of trading stats there and not many people question their authenticity.



Another one


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## Trendnomics (14 February 2016)

minwa said:


> From Myfxbook, lots of trading stats there and not many people question their authenticity.
> 
> View attachment 65877
> 
> ...




One of the trading records has *360 closed trades* and the other has *88 closed trades* - not enough trades to be deemed statistically significant (are there any records with +1000 closed trades?).

These are good examples of short term excursions into the "black zone". 

The records depict high trade frequencies (+1000 closed trades should be achievable in a couple of months, unless the operator bails on the system - as usual) - please provide links to the records and we can monitor the outcome at +1000 closed trades (if achieved ).


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## minwa (14 February 2016)

Trendnomics said:


> One of the trading records has *360 closed trades* and the other has *88 closed trades* - not enough trades to be deemed statistically significant (are there any records with +1000 closed trades?).
> 
> These are good examples of short term excursions into the "black zone".
> 
> The records depict high trade frequencies (+1000 closed trades should be achievable in a couple of months, unless the operator bails on the system - as usual) - please provide links to the records and we can monitor the outcome at +1000 closed trades (if achieved ).






 Everything is public on myfxbook. Nothing's gonna convince ya, next will be "it's scalping - I'm gonna need to see 30+ years at least to see it holds up". Stay in your bubble, I'm done on this stupid topic of no 50%+&1:1+ in existence.


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## Trendnomics (14 February 2016)

minwa said:


> Everything is public on myfxbook. Nothing's gonna convince ya, next will be "it's scalping - I'm gonna need to see 30+ years at least to see it holds up". Stay in your bubble, I'm done on this stupid topic of no 50%+&1:1+ in existence.




Probably is scalping :, but I'll give you this one.

Thanks.


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## minwa (14 February 2016)




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## skc (14 February 2016)

Trendnomics said:


> Guys, there is a lot of misguided information in this thread.
> 
> Let me simplify this matter with the following basic positive expectancy chart:
> 
> ...




I think this is generally true.



Trendnomics said:


> Correct, there is no mechanical system (or purely systematic trader) with a statistical significant record, that falls in the black zone.




But I am unsure how you can make such a definitive statement? Did you conduct the research yourself? Or did you find a piece of verified 3rd party research to reach this conclusion? There are so many systems out there and I'd be surprised if the researcher (be it yourself or someone else) had access to *all * of it. So it's simply unknowable if any system operates in the black zone...

You may believe that to be the case, with good reason, but it's simply not verifiable.


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## DaveDaGr8 (15 February 2016)

That graph tends to suggest that as you move to the top right corner your system is more profitable. Nothing could be further from the truth, the RAR will certainly increase as will the sharpe, however the CAR can drop off significantly. It's quite easy to make a system in the black zone, i have lots of them. The problem is that as i extend into this zone my drawdowns increase and exposure tends to drop off significantly. The low exposure kills the profitablility, you can get good RAR values >500%pa but that's not profit. Also the high MDD's turn me right off, having a 50% MDD and 10% exposure is unacceptable to me, yet these systems are well into this theoretical black zone with massive RAR's but are less profitable than being riskier and moving back into the green zone.

Now if i were borrowing big sums of money, i would want a bigger sharpe ratio, so adjust and head into the top right black zone again, increase RAR which will probably reduce car and try to keep MDD stable. Less profit, but a lot less risk too allowing me to increase my borrowing percentage. 

In a nutshell, i have really never cared about payoff ratio ( ave no wins / ave no losses) or profit factor ( win profit / loser losses) because they mean nothing to the profitablility of a system and increasing them has an undetermined effect on system profitablility, it could go up or down depending on the effect it has on exposure. car/mdd is the single biggest thing that i look at because that determines system risk. The less risk the easier you can trade it without losing sleep. Start with a good car/mdd and everything else falls into place.


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## howardbandy (16 February 2016)

Greetings --

My mantra is:
Trade frequently
Trade accurately
Hold a short period of time
Avoid large losses

Traders stop trading because the drawdown exceeds their tolerance.  Drawdown occurs when there are either large losing trades or a sequence of small losing trades.  Given a set of trades and an opportunity to add more winners or remove losers, the best (safest and most profitable) choice is to remove losers.

High accuracy:
Improves risk by lowering drawdown.
Increases profit potential by being able to trade at higher leverage for a given level of risk.
Gives better insight into the health of the system.

I strongly recommend working through the risk analysis of every trading system.  Begin with the set of trades that you think is most representative of the future.  Use that as the population from which a Monte Carlo study creates many equally likely trade sequences, compute the drawdown of each sequence, and evaluate the distribution of those drawdowns.  If the probability of a drawdown that exceeds your tolerance is too high, the system can only be traded with a fraction of the account -- the remainder must stay in risk free issues to act as ballast for the drawdown in the exposed portion.

All of that said, the sweet spot for most traders is accuracy of at least 65%, holding period of a few days.  There are many examples of systems with these characteristics.  Lower accuracy or longer holding periods increase the drawdown and reduce future profitability.

Here is a link to a presentation I made related to risk:
https://www.youtube.com/watch?v=Vw7mseQ_Tmc

And here is a link to several more presentations related to trading system development -- design, testing, validation, analysis, and management.  All free:
http://www.blueowlpress.com/video-presentations

The Blue Owl Press website is hosting conversations about systems development.  Thoughtful questions and civil discussions are welcome.
http://www.blueowlpress.com/posts

Best regards,
Howard


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## skc (18 February 2016)

Trendnomics said:


> Correct, there is no mechanical system (or purely systematic trader) with a statistical significant record, that falls in the black zone. I'm sure there are short term "excursions" into the black zone, in particular for discretionary traders (i.e. lucky gut feelings), but over the longer term you require significant predictive capabilities to remain in this zone.




I have kept track of a system that falls in the black zone. The numbers below are from Aug 2012 to last week. Rules are purely mechanical and the numbers below are records of all signals. Win/loss are in percentage terms before transaction costs and slippage. The system is based on ASX equities and it is not infinitely scalable without introducing some slippage.

Signals      2702
Average	1.32%
Wins%	61.3%
Avg win	3.95%
Avg loss	-1.79%
Avg win / avg loss = 2.2

Cumulative performance



It just scraps in the black zone, even after allowing for transaction costs.


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## skc (18 February 2016)

howardbandy said:


> My mantra is:
> 1. Trade frequently
> 2. Trade accurately
> 3. Hold a short period of time
> 4. Avoid large losses




Love it.

I have been changing my style a bit of late, predominately to improve 3 and 4. I found that it doesn't just provide improved returns, but makes an overall happier, more relaxed trader!


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## howardbandy (18 February 2016)

Hi skc --

You wrote:
I have kept track of a system that falls in the black zone. The numbers below are from Aug 2012 to last week. Rules are purely mechanical and the numbers below are records of all signals. Win/loss are in percentage terms before transaction costs and slippage. The system is based on ASX equities and it is not infinitely scalable without introducing some slippage.

Signals 2702
Average 1.32%
Wins% 61.3%
Avg win 3.95%
Avg loss -1.79%
Avg win / avg loss = 2.2

-------------------------

Those are nice results.  

If you are interested, I will do some analysis of risk and profit potential for you.  The data I need is a list of trades, each with the percentage change in the issue being traded, whether the position is long or short.  

If these are out-of-sample results, you can probably buy Tasmania next year.

Best,
Howard


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## debtfree (18 February 2016)

*skc:* I see the '*Avg loss -1.79%*' on that system so naturally I gather the system risked over 1.79% on each trade. How much of the bank is risked on each trade in the system?

Thanks ... debtfree


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## howardbandy (18 February 2016)

Hi DebtFree --

Pardon me if I step in ahead of skc to make a comment.

Given a set of trades that are good estimates of trades that will occur in the future, an analysis of those trades provides metrics related to the depth of drawdown that can be expected, calculation of the position size that maximizes account growth and wealth after some period of time, and annual rate of return.  

The analysis uses the entire distribution.  Single metrics, such as mean, standard deviation, or maximum loss are not adequate.

Best,
Howard


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## skc (18 February 2016)

howardbandy said:


> Those are nice results.
> 
> If you are interested, I will do some analysis of risk and profit potential for you.  The data I need is a list of trades, each with the percentage change in the issue being traded, whether the position is long or short.
> 
> ...




Hi Howard, 

Thanks for your kind offer but I won't bother you with the stats. I also mentioned it is not infinitely scalable so it's unlikely that it will generate returns exceeding the sale price of Tasmania.



debtfree said:


> *skc:* I see the '*Avg loss -1.79%*' on that system so naturally I gather the system risked over 1.79% on each trade. How much of the bank is risked on each trade in the system?
> 
> Thanks ... debtfree




The -1.79% is the average negative movement in the stock at the end of the trade amongst losing trades. The biggest loss is much bigger than that. The system does not use predetermined stop loss levels. Position size would also vary a lot, mostly depending on the available liquidity. You can get signals in the biggests stocks or the smaller illiquid names, so slippage would definitely come into play when you trade too big on those fringe names. 

So actual trade results won't be the same % as the raw data... but it should still be within the black zone.


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## debtfree (18 February 2016)

Thanks Howard and skc for your response,  appreciated as your replies answer my question and fulfills my curiosity.

Cheers ... Debtfree


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## Newt (18 February 2016)

Excellent posts here, including graph in post#10.

Would be a shame for the conversation to get bogged down in "futures versus stocks".  Futures (often) more leverage and able to trade long and short.  

I would be really interested too to see long term (>5yr) proof of mechanical long only stock trading systems in the "black zone".


Edit:  Dammit - only read the 1st page of the thread.
skc has posted an example already.....!


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## skc (18 February 2016)

Newt said:


> Excellent posts here, including graph in post#10.
> 
> Would be a shame for the conversation to get bogged down in "futures versus stocks".  Futures (often) more leverage and able to trade long and short.
> 
> ...




My system includes both long and short trades.


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## howardbandy (19 February 2016)

Greetings --

Regarding:
Would be a shame for the conversation to get bogged down in "futures versus stocks". Futures (often) more leverage and able to trade long and short. 

-------------------------

To evaluate risk, position size, and profit potential, make your calculations assuming you are trading the entire value of each futures contract.  

For example, the e-mini S&P futures contract has a margin of about $5,000 per contract.  But each contract represents $50 per point.  At about 1900 (current price), the full value of one futures contract is 1900 * 50 == $95,000.  Compute risk, position size, and profit potential assuming you are buying a stock where each share is $95,000. 

With a $100,000 account, margin lets you trade as many as 20 contracts.  Prudence allows at most 1 contract.  Safe-f would need to be about 2.0 in order to trade 2 contracts without the drawdown exceeding your risk tolerance.  If safe-f is considerably less than 1.00, then $100,000 is not enough to trade a single contract.  Say safe-f is 0.70, then about $130,000 of funding is required to trade one contract.

Best regards,
Howard


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