Adrian Reid explains why win rate is a misleading metric for traders. Expectancy, the average money you make per dollar risked, matters more because it factors in both how often you win and the size of your wins versus losses. A system with 30% winners can beat one with 80% winners if your big trades win and your small trades lose.
Have you ever spent time looking on the Internet for trading systems to try and improve your profitability or make more money in the market? If you have, then you probably noticed all sorts of marketing material out there by brokers and advisors and newsletter services that promote my 80% win rate system. Or if you take my trade calls or subscribe to my newsletter, you'll be right 90% of the time or 97% of the time. That's awfully tempting. But the trouble is, the percentage of time that you win when you make a trade is one of the least important factors in determining how much money you make in your trading account. The reason is this. The percentage of winners says absolutely nothing about how big those wins are or how big your losses are. Now, what happens with a lot of these advisory services.
Or systems that are out there promoted with this high win rate is they talk about all of the winning trades. They don't tell you how big they are, and they don't tell you how bad the losses are when they finally come along. It's far more important to look at something called expectancy. Now, expectancy is how much money you expect to make on average for each dollar that you risk in the market. And it takes into account both the win rate or how often you have a winning trade and losing trade and how big the winners and losers are. So. So it's quite possible to make huge amounts of money being right 50% of the time or even less as long as you have big winning trades and keep your losses small. So forget the win rate. Don't go for those trading systems or advisors that promote very high percentage of winning trades because they're not telling you the full picture. You need to look at expectancy. You need to look at the size of the wins and the size of your losses. And by having big wins and small losses, you. You're going to make more money in your trading account. My name is Adrian Reed and I'm from Enlightened Stock Trading. That's all for this video. I'll see you in the next one. Bye for now.
