The 100% Win Rate Myth

BarroMetrics View: The 100% Win Rate Myth

The conversation  Paul and I had in my blog, “Value for Money“, prompted this post.

My view of Paul is someone who is highly intelligent, and someone who has a great thirst of knowledge. My impression is he has covered most of  the trading courses in Singapore. So, when he makes a comment, I am always happy to listen.

In this case, though, I was surprised at his take.

What prompted the conversation was Paul’s comment ” Those who passed the exam and keeping the Trading Commandments are supposed to trade in such a way in future that all trades made are profitable without losses!”.

Later in the conversation, Paul revealed that the Dr C was teaching a scalping timeframe.

Here’s what still surprises me – that retail traders believe that there is a methodology being taught that will provide a 100% win rate. It shouldn’t surprise me, I suppose, but it does. I can only say the salesperson must be awfully good.

Let’s be clear.  A scalping timeframe needs a win rate to compensate for the fact that the $win:$loss is usually less than 1:1. And in the hands of a good trader, a win rate in the high 80%s and mid 90% is possible – at least this has been my experience, gathered from the successful scalpers with whom I have had the pleasure of meeting, and in some cases, calling friends.

I don’t know the methodology that Dr C taught (I did try to Google but was unable to find any info). Presumably if a scalping timeframe, he was relying on a reversion to mean to prevent ‘losing trades’. In a scalping timeframe, most trades,  if appropriately entered, can be expected to revert to mean and to allow us to square a trade without loss.

But the ‘key’ words are: “most trades”.

Tom Baldwin was one of the largest (if not the largest Bond trader in the Chicago Pits). I recall one lunch time – he was either holding court or giving a noon-day lecture (many, many moons ago so my memory is suspect). He was telling us newbies how he had tossed away many days of profits in one trend day down. On that trend day down, he took his loss at the end of the day.

That comment lays bare the dangers of scalping. There are times when you will be caught on the wrong side. And, at those times, you will have to exit a position no matter how large the loss. Coming into trading, and looking for a high win rate (or no loss rate) is setting yourself up for long-term failure.

Much more important than the win rate alone is the expectancy return.

(Avg$Win x WinRate) – (Avg$Loss x LossRate)

The product of this formula must be positive is we are to make money. Where our Avg$loss is so large as to overwhelm the high winrate, then you will see a negative expectancy.

In my view, if your money management and trading plan, have an edge, then the trader’s focus ought to be on the execution process. Get that process consistently right, and you won’t have to worry about the win rate.

6 thoughts on “The 100% Win Rate Myth”

  1. I am not too sure of who this Dr. C. is. But I am very sure of this.
    There is no 100% win rate trade. And I am also very sure of one Dr. C whom I know of. He is known by Dr. Cho or Dr. C.T. Cho or Dr. Cho chin tow who claims he has 100% win rate trade & he has taught countless of students globally to achieve the same results. He claims to make $500 million annually from his trading. He holds patents of the world’s first VHS tape recording technology. He holds a Phd. He says he’s a Taiwanese & travels between Taiwan , London & New York in first class tickets. For heaven’s sake, he couldn’t even provide a district code for his UK & NY apartments.

    Alright! enough being said. He showed his trading account. And we discovered they were all demo accounts. And they were all doctored statements.
    He never answered any trading questions directly. He’s a big bluff. We have been fooled by this man. So please do not attend any of his workshops nor sign up any brokers through him.

    I am not ashamed to write about my own foolishness because i was one of his students and I hope this dr. Cho will stop treating new traders like idiots. Because one day all of the students may just take you to the cleaners.

    Please do not be fooled by this dr. Cho .

  2. hi Ray,
    Some clarifications:
    1. Dr Cho did not teach a scalping timeframe.

    2. I am just saying that as I traded 50 standard lots per trade, it was the first time in my life that I experienced the great feeling from scalping.

    3. The trading courses I covered can be counted by the fingers! 🙂

    _______

    Quantum Forex101
    http://www.quantumforex101.com

    _______

    Dr Cho wrote to me on 17 May 2014:

    “…. that the WONDER POWER OF THE PROPRIETARY
    Q-TECHNIC which enable a well trained forex trader to make money in every
    trade is THE TRUTH, THE WHOLE TRUTH, NOTHING BUT THE TRUTH.

    This WONDER POWER OF THE Q-TECHNIC has been PROVEN RIGHT
    UP TO THE HILT AND BEYOND ALL REASON DOUBTS by PhD scholars,
    professors and computer experts from the British Universities in UK…”

    He also wrote that if you are still not convinced, he can produce tons of evidences, facts and figures
    to certify that traders who use the PROPRIETARY Q-TECHIC and adhere strictly
    to the TEN COMMANDMENT GOLDEN RULES imposed therein, will make money in
    every trade and make multi-million USD within a trading-day.”

    Al the best!

    Paul

  3. Hi Paul

    A couple of comments:

    1) To be sure we have no misunderstandings, I view your thirst for knowledge as a virtue not a vice.

    2) If Dr Cho is not teaching a scalping method, then I have even deeper reservations (much deeper) about the 100%. I’ll leave it at that.

    3) If Dr Cho’s claims are genuine, I would be happy to introduce Dr Cho and his evidence to my prop house friends. Both Dr Cho and the props will make tons of money.

  4. Hi Sammy

    Thanks for the comments.

    My approach to the 100% claims would be the same as the one required of me when I started my hedge fund:

    “Produce broking statements, an account size of not less than US$250K, and an audited track record of not less than 5 years – anything less than that, don’t waste my time”.

    Let’s leave this discussion at that.

  5. hi Ray,
    Yes, I am a very very “curious” person!

    May be one day I would tell you my scissors story, black swan story at Botanic Garden … lol lol …

    Please let me know if you would like to have Dr Cho’s “tons of evidences, facts and figures”.

    No harm right? 🙂

    Cheers!

    Paul

  6. Hi Paul

    Sure Paul, next time I am Singapore, would love to hear the story.

    Turning to Dr C

    I would only be interested if the ton of evidence takes the form of:

    1) an audited track record by a reputable accountant, with
    2) a starting account size of not less than US$250K, and
    3) for a minimum period of 5 years.

    Other than that I don’t have the time or inclination to wade through the ton material.

    Sorry mate, have seen many of these claims over the years.

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