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What Win Percentage Range Is Acceptable?

            It would seem that the closer a trader is to 100% winning trades, the better trader they are.  On the flip side it would seem that the closer they are to 0%, the worse they are.  While it is certainly true that you would like to win the most trades possible, there is more to it than that.  I would argue that a 95% win rate is infinitely worse than a 65% win rate.  Hopefully this article will help to tell you why.

            First we'll take a look at traders with a low win rate.  We will classify 0% to ~40% as low.  If a trader fits into this range, then the closer they are to zero probably means the worse they are.  Most traders in this lower range are losing traders.  You will occasionally find a trader who attempts to catch very large moves with very tight stops.  This type of trader may have an extremely low win % and still be a very successful trader.  I have yet to find a trader of this variety trading on ZuluTrade. 

            The next range is from ~40% to ~70%.  This is the range most winning traders will be in.  The reason these traders win is not because they pick a ton of winning trades and rarely have a loser.  They may in fact have more losing trades than winning trades.  The reason they are able to win is that they properly manage their trades once they are open.  They use reasonable stops that will often be executed.  This obviously results in a losing trade, but a small loser.  These small losers are only a fraction of the size of their winning trades.  These are most often the traders that have the ability to cut their losses but let their winners run.  This seems like a simple concept, but very few traders have the discipline to actually do it.

            The last group are those with a very high win % (>70%).  It seems the closer to 100% these traders get, the more people want to trade their signals.  Unfortunately the opposite is probably the correct play.  These traders win an incredibly high amount of the time because they often take profit off of the table as soon as it appears.  This strategy is ok of you also plan to cut losses in that manner.  But traders with 85% win rates and above do not have this strategy in mind.  Rather than accepting a small loss and moving on with their day, they will let a loser run indefinitely and even add to that position in many cases.  This eventually wipes out months or more of winning trades all at once and in the end has no chance of success.   I have attached 2 equity graphs as examples of this type of meltdown.

Forex Win % GraphForex Win Percentage Graph 

This trader has a nearly 80% win rate. As you can see this one series of trades wiped out 6 months of profits and left the account over 1000 pips in the red. To this day this account has over 100 traders trading their signals. This trader has a win rate of over 90%. Because he was unable to accept a small loss he endured a drawdown of over 5000 pips.

            These types of losses seem extreme, but I actually started watching both of these traders in demo accounts weeks before their respective meltdowns because I wanted to use them as examples once the inevitable happened. 

            The point of this article is not to say that noone outside of the predetermined range can possibly be an winning trader.  Surely many people can and do win with a win % outside of my range.  I just want to warn you that if someone has a 95% win rate you should stand aside and hope not to get hit by any debris when they eventually implode.

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