If you knew of two traders and Trader 1 consistently won 40% of their trades while Trader 2 consistently won 80% of their trades...who would be more profitable?
In reality, you cannot tell which trader is more profitable or even if either trader was indeed profitable. If Trader 1 consistently won 200 pips on each win and limited their loss to 100 pips on each losing trade, after a series of 10 trades they would be up about 200 pips. If Trader 2 won 25 pips on each win but lost 100 pips on each loss, they would be a breakeven trader after a series of 10 trades.
But many new traders are misled by win percentage. Winning most of your trades is exciting, but not if it does not lead to consistent profits. So keep this in mind when you hear about a strategy that wins 90% of the time. That does sound appealing, but the key is profitability. One does not always lead to the other. If your goal is to be consistently profitable, win percentage is not as important how much you win when you are right compared to how much you lose when your are wrong.
DailyFX/Media Pontianak
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