Trading Systems - Understanding winning percentage

Trading Systems - Understanding winning percentage

Let's say you buy our developed trading system with a win percentage of 70%.

What exactly does that mean?

This means that the likelihood of having a winning trade is 70% and it is more likely that the trade are currently out to be a winner from a loser.

Does this mean that when you trade 10 times winners will have 7? - No!

This means that if you trade long enough (ie at least 40 trades), then there will be more winners than losers, but that is no guarantee that after 3 losers in a row there will be a winner.

Let me give you an example:

If you toss a coin, then have 2 possible outcomes: head or tail. Probabilities are 50% and when you throw a coin 4x then you should 2x 2x head and tail.

But what if you throw a coin 3 times and 3 times have a "head"?
What are the probabilities of the "head" of the next coin toss?
50% or less?

If you answered "less" than a common misconception that fell. The probabilities of getting another "head" is another 50%. No more and nothing less. But many traders think that the probabilities of the "tail" are higher now because the previous three coin throws resulted in the "head". Some traders even increase their bet because they are convinced that now the tail is overdue. Statistically this assumption is nonsense and dangerous and many times costly mistake.

Going back to our trading example: If you have a winning percentage of 70% and had nine losers in a row, what are the probabilities have a winner right now? - It's still 70% (and it still has 30% chance of a loser).

It is important to understand this concept!

Markus Heitkoetter is a 15 year veteran of the markets. He is the CEO of Rockwell Trading, a company that was founded by five active traders to teach interested investors how to make money on the markets with trading systems.



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