Edition 3: Confessions of a Serial Loser
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Hey. I'm a loser. There, I said it. I'll even say it again, I'm a loooseer. Not only have I lost money on trades before, and certain I will again, but I actually lose more trades than I win! Go figure. But before you swiftly send this email to the trash & promptly unsubscribe from our weekly newsletter, read on! What you're about to learn may surprise you. |
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You can be "wrong" more often than you're "right" in trading and still come out ahead. I use quotation marks because a great trader is never wrong, even when he or she loses, but more on that later! The concept I'm about to introduce you to is SR vs RR. |
Strike Rate (SR) is the percentage of winning trades vs losses, regardless of how much the win or loss actually is. Unlike the roulette table, the wins and losses are usually not equal.
Strike Rate is calculated by dividing your number of wins by total trades.
For example, a trader places 50 trades and 30 of them are winners;
30/50 = 0.6, which represents a 60% strike rate. Pretty good!
But this metric alone doesn't mean anything with its counterpart RR.
SR is a simple and enticing metric for beginner traders to understand, making it easy to get swept up by scammers, signal services, and sellers of botchy trading algorithms. 👇
| Automated trading software is notorious for placing hundreds of winning trades banking $10 per trade on a $10,000 account.
The trader will watch as their account grows to $12k, 13k, 15k, maybe even $17,000 before... BOOM... 1 loss resulting in a $17,000 hit wiping out all his or her gains plus their initial capital. Tread cautiously, friends. Don't get swept away or infatuated with Strike Rate without understanding its counterpart. 👇 👇
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Reward Risk ratio (RR) is the other important metric to get the full picture.
Calculated by firstly averaging all your wins & losses, then dividing your average win by the average loss.
This represents the winners are 2x the size of losses, on average.Without accurately knowing this, you've got incomplete data.Let's revisit the trading bot above and calculate it's RR.Avg Win: $10
Avg Loss: $17,00010/17,000 = 0.00059:1 RR 👈 this is the crucial metric missing from the signal service & algo trading guys' boosted social media posts.This is not promoted or posted publically for obvious reasons. 😇
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Zoom Out: Every professional trader knows these 2 metrics at a bare minimum. Put it to the test. The next person you meet who says he's a trader, ask him if he knows his numbers. Based on his answer you'll quickly know if he's legit, or just another crypto-bro chasing the big time. There's an infinite amount of profitable combinations of the SR / RR variables, this allows for many profitable trading styles, but they all include taking losses from time to time. The Golden Rule: Never risk more than 1% of your account on any one trade. Day Trader 1, may prefer trading a high Strike Rate (HSR Strategy), mainly taking 1:1 RR positions, (risking 1% to make 1%) with the aim of winning 65% or more trades. Day Trader 2, is more balanced, which is the category I fall into. The Swing Trader, is one who focuses on high RR setups, usually targeting 4-7% on any one setup. This style can have an incredibly high reward risk ratio, and can also offer a fair strike rate, though there are a lot fewer setups and is a less active form of trading. These 3 trading styles (and more) are taught over at Pro Trader. If you're considering trading for a living, try our 7-day trial. Whether you enrol or not, I cannot guarantee your success. That burden lies on you and the effort you put into making it happen. One thing is for certain, losing trades is the part of trading you'll need to get comfortable with. As professional traders, we're all losers, but we don't let that get in the way of making money. 💸 |
The Golden Rule: Never risk more than 1% of your account on any one trade.
Day Trader 1, may prefer trading a high Strike Rate (HSR Strategy), mainly taking 1:1 RR positions, (risking 1% to make 1%) with the aim of winning 65% or more trades.
Day Trader 2, is more balanced, which is the category I fall into.
Generally, I'm, looking at making 2% return per trade, while risking only 1% per loss (2:1 RR).
At the time of writing this, my win rate is actually less than 50%! (It floats around 40-45%). That means I lose more trades than I win, yet am still highly profitable
The Swing Trader, is one who focuses on high RR setups, usually targeting 4-7% on any one setup. This style can have an incredibly high reward risk ratio, and can also offer a fair strike rate, though there are a lot fewer setups and is a less active form of trading.
These 3 trading styles (and more) are taught over at Pro Trader. If you're considering trading for a living, try our 7-day trial.
Whether you enrol or not, I cannot guarantee your success. That burden lies on you and the effort you put into making it happen. One thing is for certain, losing trades is the part of trading you'll need to get comfortable with.
As professional traders, we're all losers, but we don't let that get in the way of making money. 💸
