The 90 Percent Trading Club
If you've been around investment circles long enough, you have undoubtedly seen ads for stock, futures, forex or commodity systems, trading systems, services, algorithmic trading strategies or newsletters claiming a 90% or greater winning trade rate. This, of course, makes the approach very enticing. I mean, seriously, how could you lose money if you win 90% of the time?
On my Calculator page, I provide the math behind how to really evaluate a system - expectancy. That calculation includes winning percentage, average win and average loss, so I won't repeat it here. Instead, I'll focus in on the 7 ways someone can claim a 90% winning rate, and what you should watch out for:
1. Mr. Hindsight
This person can point to any chart, and identify his buy and sell points with absolute precision. Usually recognized as an expert in his field of analysis, he can create stunning buy and sell signals for past data. Problem is, he usually can't do it going forward.
ADVICE: Ignore past "predictions," and only follow Mr. Hindsight in real time. You'll soon see his true ability.
2. Ms. Vague
Her market predictions are akin to reading the works of Nostradamus. She'll say "the market will be up today, unless GDP figures are disappointing." After the numbers come out, the prediction can be made to fit the outcome - "well, the numbers were only somewhat disappointing" or "other forces overpowered the market, so even though I was right, the market fell."
ADVICE: Turn off financial TV shows, since this is where Ms. Vague and here cohorts lurk.
3. Mr. Sneaky
This guy will have an ad that states "95% winning closed trades." Sounds great, BUT it usually means that 5% of his trades are currently open losers, usually big losers, that he has held onto for a long time.
ADVICE: Make sure all open trades are disclosed, too. Treat open and closed trades as the same. Don't fall for the "this losing trade can always come back and be profitable" ploy. This is an old trading system trick, and still works today on the unsuspecting.
4. Ms. Quick Exiter
In and out like a flash on winning trades, Ms. Quick Exiter will typically have losses 5-10 times her winners. But, she gets a lot of winners, and she wants to dazzle you with winning percentage.
ADVICE: Look at total net profit. You probably will see a losing strategy, even with a 90%+ winning percentage.
5. Mr. Liar
If Mr. Liar can do anything to cheat, he will. In the past, he has stuck all his losing trades in one account, put all his winners in another account, and of course, only shows you the winning account. But, he has many other tricks up his sleeve, certainly more than I can name here.
Mr. Liar might not even trade!
ADVICE: Track his trades in real time. Make sure they are specific and detailed enough so they cannot be misinterpreted.
6. Mr. Long Term
"The stock market will rise," says Mr. Long Term. He is absolutely right, if you don't pin him down on time. It may take 100 years, but stocks will eventually rise. But, the first 99 might wipe you out. Long term forecasters hope you'll forget their predictions if they are incorrect.
ADVICE: Treat any prediction, especially long term ones, with extreme suspicion. The fact is most experts are just guessing.
7. Ms. Really Can Do It
A rare and exceptional talent, this person is the real deal. No gimmicks, no tricks - just super high winning percentage and super high profits.
ADVICE: Ask yourself "why would this person sell me their amazing secrets for $79, when if she is so good, she can trade and make unlimited amounts of money?" Answer: No one will ever sell you the ultimate key to trading success, or the ultimate algorithmic trading system, and if they did, it would cost a lot more than you could afford. A few legit people do sell very good trading education, though.
So, now you know the seven members of the 90% winning trade club. Avoid these folks, and you'll almost certainly become a better trader.
On my Calculator page, I provide the math behind how to really evaluate a system - expectancy. That calculation includes winning percentage, average win and average loss, so I won't repeat it here. Instead, I'll focus in on the 7 ways someone can claim a 90% winning rate, and what you should watch out for:
1. Mr. Hindsight
This person can point to any chart, and identify his buy and sell points with absolute precision. Usually recognized as an expert in his field of analysis, he can create stunning buy and sell signals for past data. Problem is, he usually can't do it going forward.
ADVICE: Ignore past "predictions," and only follow Mr. Hindsight in real time. You'll soon see his true ability.
2. Ms. Vague
Her market predictions are akin to reading the works of Nostradamus. She'll say "the market will be up today, unless GDP figures are disappointing." After the numbers come out, the prediction can be made to fit the outcome - "well, the numbers were only somewhat disappointing" or "other forces overpowered the market, so even though I was right, the market fell."
ADVICE: Turn off financial TV shows, since this is where Ms. Vague and here cohorts lurk.
3. Mr. Sneaky
This guy will have an ad that states "95% winning closed trades." Sounds great, BUT it usually means that 5% of his trades are currently open losers, usually big losers, that he has held onto for a long time.
ADVICE: Make sure all open trades are disclosed, too. Treat open and closed trades as the same. Don't fall for the "this losing trade can always come back and be profitable" ploy. This is an old trading system trick, and still works today on the unsuspecting.
4. Ms. Quick Exiter
In and out like a flash on winning trades, Ms. Quick Exiter will typically have losses 5-10 times her winners. But, she gets a lot of winners, and she wants to dazzle you with winning percentage.
ADVICE: Look at total net profit. You probably will see a losing strategy, even with a 90%+ winning percentage.
5. Mr. Liar
If Mr. Liar can do anything to cheat, he will. In the past, he has stuck all his losing trades in one account, put all his winners in another account, and of course, only shows you the winning account. But, he has many other tricks up his sleeve, certainly more than I can name here.
Mr. Liar might not even trade!
ADVICE: Track his trades in real time. Make sure they are specific and detailed enough so they cannot be misinterpreted.
6. Mr. Long Term
"The stock market will rise," says Mr. Long Term. He is absolutely right, if you don't pin him down on time. It may take 100 years, but stocks will eventually rise. But, the first 99 might wipe you out. Long term forecasters hope you'll forget their predictions if they are incorrect.
ADVICE: Treat any prediction, especially long term ones, with extreme suspicion. The fact is most experts are just guessing.
7. Ms. Really Can Do It
A rare and exceptional talent, this person is the real deal. No gimmicks, no tricks - just super high winning percentage and super high profits.
ADVICE: Ask yourself "why would this person sell me their amazing secrets for $79, when if she is so good, she can trade and make unlimited amounts of money?" Answer: No one will ever sell you the ultimate key to trading success, or the ultimate algorithmic trading system, and if they did, it would cost a lot more than you could afford. A few legit people do sell very good trading education, though.
So, now you know the seven members of the 90% winning trade club. Avoid these folks, and you'll almost certainly become a better trader.
About The Author: Kevin Davey is an award winning private futures, forex and commodities trader. He has been trading for over 25 years.Three consecutive years, Kevin achieved over 100% annual returns in a real time, real money, year long trading contest, finishing in first or second place each of those years.
Kevin is the author of the highly acclaimed best trading book "Building Algorithmic Trading Systems: A Trader's Journey From Data Mining to Monte Carlo Simulation to Live Trading" (Wiley 2014). Kevin provides a wealth of trading information at his website: http://www.kjtradingsystems.com
Copyright, Kevin Davey and KJ Trading Systems. All Rights Reserved. Reprint of above article is permitted, as long as the About The Author information is included.
Kevin is the author of the highly acclaimed best trading book "Building Algorithmic Trading Systems: A Trader's Journey From Data Mining to Monte Carlo Simulation to Live Trading" (Wiley 2014). Kevin provides a wealth of trading information at his website: http://www.kjtradingsystems.com
Copyright, Kevin Davey and KJ Trading Systems. All Rights Reserved. Reprint of above article is permitted, as long as the About The Author information is included.