Beginning investors tend to focus too much on a statistic called the 'Win Rate'. They believe that if you have a trading system with a Win Rate higher than 50%, they will make money. However, this is not correct - you can have a system with a 60% Win Rate which is an unprofitable system. Two figures are missing from their consideration of profitability - the Average Win Size and the Average Loss Size. So, if their System has a Win Rate of 60%, with an Average Win Size of $100 and an Average Loss Size of $200, the system will be unprofitable. Use the formula:
Profit = (WR x AWS) - ((1-WR) x ALS)
to determine whether you have a profitable system or not.
Profit = (WR x AWS) - ((1-WR) x ALS)
to determine whether you have a profitable system or not.
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