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I find it intersting the proliferation of these strategies that use what I would call a "reverse" risk:reward profile. One we saw last week was "FuturesAlpha" using a 10 point stop for a 2 or 5 point profit target in the ES market. Another vendor's system was mentioned in the viper thread called "Gina" which uses an average 17 point stop in the ES for a potential avg. 4 point profit. (I looked up Gina and it recommends a $10K initial account balance). Along these same lines, a trader I worked with had been taught by a vendor to use a 5 point stop in the ES for a 2 point profit target. At that time I ended up in a rather heated exchange with the vendor about the practical viability of such an approach.

It is my opinion these vendors are trying to pump up the win percentage of their system (at any cost). I assume the correlation between attracting new customers and the advertised win% is the motivating force driving vendors in this direction. In terms of building a trading system, clearly it is much easier to obtain an 80% win percentage using a 17 point stop and a 2 point profit target, than a 2 point stop and a 4 or 6 point profit taget.

The primary reason why I consider these strategies unsustainable is that even the most stable and reliable 80% system will inevitably hit a losing streak which in this case (small wins - big losses) will likely blow up the average trader (either financially or psychologically). Also, once the occasional extended losing streak is factored into the statistics, the very long term win% will be pulled back toward the mean and end up somewhere around 60% (optimistically best case). The longer the test period, the closer to 50% the system will be drawn as more of these infrequent and random losing streaks are encountered.

I guess my question now is am I missing something obvious here ? I feel a little like the kid pointing out that the emperor has no clothes ??!!?
Ha! The Emperor has not had new clothes in centuries! Actually there have been no emperors in centuries.

I feel ya - you would have to be a complete idiot to accept the figures you just posted.

I sometimes feel like an idiot when I take trades with a 1:1 RR ratio. Negative is out of the question.

I recall a quote (can't recall from where) which said something to the effect "if you show me a traders balance sheet with consistently small losses I'll show you a profitable trader"

And if there is a trader out there who is still trading with negative RR - please introduce yourself. I would like to learn more.
Do you remember my 90% Winning Strategy from Feb 2007?
Good comments PT.

It’s all about system sales and pain relief. “We cure what ails ya!” Nothing sells better than a promised HIGH WIN PERCENTAGE (80% +). Take 2 different systems/methods and compare stats including overall monthly net profit. Most new or struggling traders (which is the vast chunk of retail folks out there) will tend to opt for a win percent rate of 80% and monthly profit of $10,000 vs. a 50% (or less) win rate that shows monthly profits of $15,000.

Why? Because they’ve experienced the pain of losing. And it really really sucks. It just “feels” better and is appealing to think that now they’re going to be profitable on every 4 out of 5 trades. Being consistently right, even if just for a few ticks, most of the time is self reassuring … or at least the thought of it is. It’s like when someone cranks up the morphine drip on a pain patient. The big ahhhhh!

Here’s where vendorman rolls into town with his dog and pony show. “And in this little bottle right here is a cure for what ails ya, a salve fer yer pain, my friend!” They slap a nice price tag on the high-win-percent-engineered snake oil bottles, sell ‘em like hotcakes, then yank up their tent stakes and haul @ss to another town … or another “new and improved” system/method.

This kind of thing has been going on since we were monkeys.
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