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90% Winning Strategy

Here is my 90% wining strategy that I DO NOT suggest you use. I'm fairly certain that this strategy will produce 90% winners even though I have never traded it or even back tested it.

Here it goes:

Flip a coin to decide if you're going to trade long or short. At the open of the market (I'm talking about trading the ES here) enter your trade at market and put in a target of 1 tick. Do not use a stop.

Now what this strategy assumes is that the market is going to trade at least 2 ticks in your direction before the close of the day and that it will do this on at least 9 out of every 10 trading days to get you the 90% winners.

What it risks is the day that you're wrong and the market moves 20 points in the other direction without your target getting hit. So you lose 80 ticks for every 9 that you make.

This strategy will lose you a ton of money but 90% of your trades will still be winners.
The purpose of this topic is not to ridicule 90% winning strategies but just to illustrate (in a very simple manner) that the percent (or number) of winning trades needs to be taken into context with the target and stop being used on the strategy.

A 90% winning strategy which has 2 point targets and 2 point stops is a VERY profitable strategy.
Excellent further reinforcement of the notion of actual trading system analysis and focus on the process rather than focusing on a single parameter that can be too limiting and of little value on its own. Trading is a business with several critical business indicators. Good story too.
Hello Daytrading,

On this topic...but an ancillary note to this topic about flipping a coin....

Question: Does the direction of the first tick after the mkt opens...8:30 am cst determine or a precursor to anything??? This of course for daytrading....

Just asking.........

My guess would be that the direction of the first tick is completely irrelevant.
Question: Does the direction of the first tick after the mkt opens...8:30 am cst determine or a precursor to anything??? This of course for daytrading....

I agree with DT the direction of the first tick is statistically meaningless. You might want to research the probabilities associated with the breakout of the Opening Range...

you lose 80 ticks for every 9 that you make

I have lost count of the number of inexperienced traders I have encountered over the years that do what is essentially the same thing, they will take an undefined (thus unlimited) risk to "scalp" a quick 2 or 4 ticks.... thus risking at least 10 or more ticks to make at best 2 to 4 ticks.... I have found this behavior is based on two bad expectations / assumptions when entering the trade:
1. the trader expects to be right ( otherwise why take the trade in the first place ? )
2. the trader will pull the trigger to take the loss (aka "mental stop") later if they are wrong, where "wrong" is vaguely defined.

These are ego problems: the over-estimation of one's ability to predict future price movement combined with difficulty in admitting a mistake.

So what happens if we reverse the logic and create a system that is right 10% of the time, risking 4 ticks to make 40 ticks of profit ?
I like your inversion of logic in that last sentance. Gives it a good perspective.

I think that another reason why you see this type of approach to trading (i.e. 2 to 4 ticks target with 40 tick stop) is that it isn't difficult for a vendor to rack up a great percent win strategy over a short period of time like a trial week.

If I were an unscrupulous vendor I could probably create impressive results in at least every second trial week by using a random entry strategy and use that type of money management. Just a thought...
Granted, the secret "90% winning system" is the headline attention grabber.

If we talk about reward:risk, maximum drawdown, consecutive losses folks start falling asleep at the keyboard...

This raises the question, if we had to choose 5 criteria upon which to evaluate or rank trading systems against each other, what would be the best mix ?
I think that an evaluation of the stop rule would be my first and number one question. That would ascertain if the system had a valid risk reduction strategy. I think you quoted (perhaps in this thread) someone telling you that they "don't use stops." Big red flag if you ever hear that.

Other criteria that I would consider important would be, in no particular order (yet):
  • Max number of contracts or account size to trade this system

  • Maximum number of consecutive losers seen in the past.

  • Number of consecutive losers from account inception to having to close the account if we see only losers.

  • Average time in trade.

  • Time required in front of screen. e.g. RTH all the time, Swing trading: 2 to 5 times a day.