In this episode of Truth About FX, Walter digs into achieving that winning mindset, building your trading confidence, and achieving that “dream” win rate. Can you really make those dynamic win rates work for you?
Download (Duration: 05:26 / 6.21 MB)
In This Episode:
00:40 – unpredictable
01:50 – big deal
03:14 – bump up
04:50 – drag down
Tweetables:
Work with your risk management. [Click To Tweet].
Trade what makes sense to you. [Click To Tweet].
Remember, you’re trading differently to the other people. [Click To Tweet].
Announcer: Sometimes, forex trading is a wild and wooly place to be. That’s why Hugh is here, to post your questions to Walter, the naked forex guy. Hugh’s got questions and Walter’s got the answers. Here at the Truth About FX Podcast.
Hugh: Hi, Walter. A listener wrote in and they’re asking about Naked Trade setups. They said that they’ve been building confidence by backtesting a demo trading on daily charts and they are getting better.
It’s getting to breakeven-ish but the markets are still very unpredictable to this person. They can’t seem to get to this 75 – 80% win rate that they hear about. What should they do about that?
Walter: You can make money with all kinds of win rates. I have a friend in Canada, Enho, and he does quite well with 30% win rate. You don’t have to necessarily be right all the time. I know that something that a lot of people want to have, it’s probably because the system that you’re testing doesn’t really sort of jive with you.
That’s going to seem to be weird because, intuitively, we were thinking, “Well, once you see a setup, anyone can see it and anyone can learn to trade but it’s not really that transferable.”
It maybe that you’re trading differently to the other people. You might be missing a rule or something like that. For example, one common one that comes up if you’re trading Big Shadows is that you don’t necessarily look for the biggest candle that you’ve seen in the last 5, 6, 7, 10 candles.
That is a really good optimizer. Like, if you’re trading those patterns, you want to see a candle that’s a big one and is a big deal to the market. That is one thing but I won’t really get caught up in all of the minor details of trying to duplicate someone’s else win rate.
What I would do instead is work with your risk management and work with what you have. If you really, really… Like, for example, I don’t know what system this trader is testing but if you are trading, testing the Big Shadow, and you’re getting 65% win rate and you really wish that you’re up at 75, 80% win rate.
Can you make the 65% win rate work for you? It maybe that your targets are really aggressive and so you are still able to make money with the 65% win rate because your reward to risk ratio is 2.71 or something like that.
You know what I mean? That is the kind of thing. It’s probably related to the way that you see these and it could also be very likely related to the way that you’re exiting from these because some traders move to break even rather quickly. I typically do that which means a lot of my trades get stopped out at break even.
Other traders will hold for longer and it means their profits are larger. They get bigger reward to risk ratios and things like that. I would definitely take a step back and make sure that you are trading what makes sense to you.
After that, dig into your exits and see if perhaps there’s some way that you can change your exit strategy if you really want to bump up your reward to risk ratio. I’m sorry, you want to bump up your win rate.
If you have a low win rate, you probably have a really solid reward/risk ratio. I know that’s a jump that I am making there but it’s usually the case. If you have a low win rate and a low reward/risk ratio then something is definitely wrong. That is what I would say.
It’s hard to know exactly what’s going on here without more information but, typically, it doesn’t sit well with you or your exits are quite aggressive and that is what’s reducing your win rate.
The other thing is sometimes people count break even trades as losers or winners. That can mess with your testing. Typically, what would happen, let’s say in a live account, is I would move my trade to plus 5 or 10 pips when it’s “move to break even”.
That trade will actually register as a winner when it comes back and pops you up at break even but I don’t look at those trades. I can see those as trades that never happened. I just want a few pips to cover, for example, if I’m paying on the swap and I’m paying on interest everyday.
Then, I want those few pips to take a buyout of that cost. That is another thing to consider. Sometimes people see their testing results or whatever and it doesn’t quite match up.
It could be because of something silly like that where you just forget that you should eliminate all of your breakeven trades instead of letting those drag down your reward to risk ratio because if you have a bunch of 5 pip trades, that really reduces your average winner, doesn’t it?
Things like that too. In forex tester, it’s easy because you just click on to move to break even and then literally it’s really a breakeven trade. Although, it can be a loser because you maybe paying swap or something.
It’s a tricky question but in the end, it’s probably something to do with the way you see them or your exit.
Hugh: Yeah, makes a lot of sense. Alright, thanks, Walter. Really appreciate it.
Walter: Thanks.
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