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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I’ve occasionally receive questions about Market-Millions and how it is only designed to trade trends. Yet markets commonly spend a majority of time in ranges.

This circles back to the reason I presented the “90% winning options strategy“.

Range trading is and can be a profitable approach AND is a good tool to have in your arsenal. What becomes the challenge (at least for me) was being able to switch between a range trading play and a trend trading play.

You see, trend and range plays exist on all time frames. When I was day trading, after the morning session (where the market normally made expansionary moves) the market would begin to range. This would be an interesting period of time… because often times people who didn’t manage to capitalize on the morning moves became very motiviated to trade the range. (Myself included.)

We’d wait as the price moved to the stock’s upper range, and short… wait for the stock to fall and close out the short and go long. This was a way to ‘make up’ for having a weak morning… or at least that’s what we felt.

You see this often becomes a dangerous time, because you’d be able to pick up 4, 5, 6 winning trades… working the range. Until on the 7th time the support you were going long at all of a sudden fails, and the long you’re holding begins to drop.

With quick reactions you might be able to get out of that trade for a small loss, but all too often the market makes a clean break never to come back in… in the end you’re holding a loss that’s equal to the 6 gains you made earlier. Now you’re left at breakeven (or worse) for all your efforts.

Personally experiencing this made me very vigilant about only trading the trend, or at very least only trading the range in the direction of the main trend.

What I see as the challenge is knowing when to stop the range trade, and being ever attentive… because when you range trade you’ll start gaining more and more confidence thinking, “Hey, I’ve got this thing figured out… I can sit here and make money all day on this.” That’s your clue… when it becomes that obvious be afraid… be very afraid

Any how, I know that range trading on higher time frames is proably not as dangerous, but the reason I haven’t gone into it at this point is because you get what you focus on. When you’re always looking for the range and the reversal, you’ll always find it. But pocketing small wins often, and losing big once is not a recipe for success… that’s why it’s something Market-Millions doesn’t address.

However maybe in the coming months I’ll address incorporating range trading in with your trend trading.

Ray

Categories: Trading
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