I’ve been working on a forex trading methodology, and came across an interesting relationship that I thought I’d share with you today.

So far the sample is very small, but the lesson applies none the less. The current win/loss ratio is quite high… out of 10 trades, 8 were winners, 1 breakeven and 1 loss.

The thing is, the profit zone I’m shooting for is relatively small. With the risk/reward of 1:1.5.

Now I noticed that within that trading period I missed out on 2 relatively large runs that could equal the 8 winners that I had.

So being the profit loving trader that I am, I ventured out to tweak the system to catch the 20% of moves that could almost double the profitability of this strategy.

But in changing the exit rules, and revisiting the previous trades the earilier winning trades were closed off at small losses or breakeven.

Essentially we reduced the win/loss ratio, while increasing the average win. (Less wins, bigger sized wins, versus smaller wins more often.)

The point I’m trying to make is that trading, and trading systems are a combination of win/loss and average win / average loss. Comparing a trading approach solely on win/loss misses out on the complete picture…

Of course if you could get a win/loss and high average win, small average loss then we’d be laughing… I’ll keep you posted : )

Ray

Categories: Trading

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