Winning Percentage Of A Trading System by Oscar G. Cagigas
The winning percentage is a critical statistic that can influence the speed at which your capital grows. Find out how you can apply it to your trading system.
When developing a trading system, the tendency is to select a particular approach that suits your personality. With this in mind, you can develop a system with a high percentage of winning trades or one with a lower winning percentage, depending on what works best for you. A typical example is a trend-following approach. These systems usually have a winning percentage of 40–50%. Given that it is a system with a good positive expectancy, it doesn’t matter whether this system has a high winning percentage.
Developing a system based on expectancy and opportunity is popular. However, the reality is that the winning percentage is a critical statistic that influences the speed at which your capital grows. In this article, I will demonstrate this with a couple of examples.
FROM A KELLY PERSPECTIVE
Suppose we have two different systems. Both have an expectancy of 50 cents per dollar risked. The first system has a winning percentage of 40%; it is a typical trend-following system. The second system has a winning percentage of 90%. It is a typical profit-taking system that takes frequent, small profits.