Adrian Reid breaks down why a 90% win rate doesn't guarantee profits. What matters is expectancy: (average win × win rate) minus (average loss × loss rate). You can make money with a 30% win rate if your winners are big enough.
Absolutely doesn't matter. Does not matter at all. In fact, it's one of the less important statistics to make trading profitable. Let me explain why, and I know this is.
Contrary to what we would. You would think because you want to be accurate and right, so you make money. Makes perfect sense, because that's what school teaches us to do. Let's take a scenario. Imagine my. My trade calls. My trades are 50% right, 50% wrong. But when I'm right, I make 10 times what I risk. And when I'm wrong, I lose one times what I'm risk.
How profitable am I?
Extremely right. That would be amazing statistics. Now, let's say I'm 99% accurate. 99% of my trades are winners, 1% are losers. If I make 1% on every trade that I win and I lose 100% on the trade that I lose, how well do I do.
So? The key is actually understanding expectancy, which is sort of the mathematical equation of trading. And I'm going to, I'm just going to join my iPad to the computer here so I can draw on the screen for you. But while I do that, let me, let me sort of explain. Your expected profit on each trade is equal to the size of your winning trades times the percentage of trades that you win, minus the size of your losing trades times the percentage of trades that you lose.
Now, you can make money as long as that formula is profitable, right?
And.
If you have a high winning percent but very small winners and very big losers, you could lose money. If you have a low winning percent but very big winners and very small losers, you can make a lot of money. So when you ask me directly how do I perform on accuracy, win rate, I have some systems or sets of rules that are right only 30% of the time.
But the winners are really big and the losers are really small. So the math of it works out to be very attractive. I have other systems that are right 70 to 80% of the time and the winners are moderately big and losers are a bit bigger because when you're very accurate, you tend to have bigger losing trades generally. But the math of that also works out pretty, pretty attractively. So you can make money across this whole spectrum as long as the size of the wins and the size of the losses is in the right proportions. So when you see, here's a tip for everyone, particularly if you're using advisory services.
Or someone else is trading for you, or there's a trading robot that you're looking at buying or something like that, when they promote 90% accurate trading robot or 85% accurate trade picks. What they're not saying is how much money they lose when they're wrong. And typically what happens the way this industry works, sadly, because it's not the most upfront and honest industry in the world. Unfortunately.
What these trade advisors will do is they'll run their system or their services and when they have a really big winning streak, they'll say, look, we had 85% winners buy our super accurate trade call services. It only cost $5,000 a year to subscribe.
And then when they have a losing streak, you won't hear from them for a little while. And then when they have a winning streak, they'll start marketing again because look, I've got an 85% accurate trade call service. This is what happens.
So what you need to, what I would encourage you to do is insist on seeing the full story. I would never ever trade on the advice of a newsletter unless I could see every single trade call they ever made. Good, bad and ugly. This is absolutely what happens in the, in the financial industry. So again, back to this idea of taking back control for your own trading. You know, develop, get your own objective rules, test them and eliminate the need to worry about that stuff. And you find yourself in a much more sustainable position because someone can say, hey, here, this is the best indicator in the world. You can say, good, tell me about it. Then I'll go and test it and I'll see if it actually works on my markets for me. And if it does, great, you can use it. If it doesn't, throw it away. It's about being empowered to be able to test and take control. Test the idea, see if it's profitable. Take control of trading yourself.
Sam.
