I’m asked often about my win rate, to which I always respond the same way. I’m proud to say that it usually hovers around 50/50, which I realize won’t impress anyone who only cares about a high win rate.
But to those who care about making money and being profitable in their trading, they know the importance behind the 50/50: the size of wins vs. the size of losses.
2014 has so far been an excercise in risk management for me in that I only took a dozen swing trades in the first quarter. That’s light, yes, but with a fickle, stagnating market, selectivity has been critical. Many have been spinning their wheels in 2014, getting whipsawed with the moves we’ve seen so far.
Back to that dozen trades, here’s the breakdown of how they’ve worked:
6 Wins
6 Losses
Exciting, huh? But let’s get to what matters: the size of the wins vs. the size of the losses.
Of the 6 losses I took, 4 of them were less than 3% each. Small losses are easy to recover from.
Of the 6 winners I booked, 4 of them were greater than 6% each. Big wins easily cover multiple small losses.
Here’s the breakdown by trade as found on the Recent Picks page:
Aside from the takeaway that you don’t have to be hyper-active to trade well, there’s a major point you don’t want to miss…
Aim for tiny drawdowns, and shoot to make more in your typical winning trade than you give back in your typical losing trade.
High accuracy rates aren’t inherently better, as by their definition they usually entail some catastrophic losses when they happen. No thanks! As for me, I prefer the smaller hits even if a little more frequent. After all, the whole point is to be net profitable, isn’t it?
If you need some help, I’d love to show you what I’m doing.
Trade Like a Bandit!
Jeff White
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