How to Increase Your Win Rate Easily

May 10, 2008: 10:49 AM CST

How can you increase your % win rate for your trades by adjusting one of two parameters?  Would it be worth it for your overall profitability?

I’ve been doing a fair amount of trading system development and optimization thanks to TradeStation, Tradecision, and Excel and have found some surprising initial results.

For the purpose of this post, let’s focus only on the % Win rate, which is the percentage of overall trades that turn out to be winners.  Most newer traders assume that professionals have very high win rates because they make accurate market calls – but that’s not usually the case.

The more important statistic is actually how much money you make per trade vs how much you lose per trade, combined with overall drawdown stats. Keep this in mind, as maximizing your % Win rate may not lead to an overall net profitable system.

So, how can you increase your win rate easily and effortlessly?

1.  Lower Your Profit Target

Lowering your profit target will often result in a higher win rate, but it can come at the expense of your net profitable rate, because it can eliminate large dollar wins.  Sometimes, a handful of large dollar gains can be the difference between a winning and losing system.  Nevertheless, lowering your targets will often increase your Win % rate.

2.  Raise Your Stop-Loss Value

Increasing your stop-loss will also raise your % Win Rate due to giving the price more room to swing to achieve your profit target.  This accounts for market volatility and could result in more profit targets being hit before stop-losses are.  Of course, a few large losses also can offset the net profit of a system.

While adopting either (or both) of these strategies will (likely) increase your win % rate, your net profit may suffer, depending on the type of strategy you’re using.

I highly recommend ‘breaking the mold’ of the traditional 3 to 1 reward to risk ratio and testing different values to see what would happen to your system.  While % Win Rate is not the most important statistic, realize that it is important, and knowing how different parameters affect the rate can help build confidence in your trading strategy.

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