I have taken over 5000 trades in total when I took 100 trades with many different and
popular trading strategies to find their win rates. Subscribers of the Trading Rush channel
saw how some trading strategies gave good profitable win rates as expected, and how
some less-known strategies gave unexpected win rates.
We even gave them a Trading Rush Score, or TR Score for short, to not only compare the
strategies by win rates, but also by reliability, consistent profits, easy to use, and quality
of trades category. If you have been watching Trading Rush videos for a while, or if you
have looked at the TR Score chart on the Trading Rush Website, you might have noticed an interesting
pattern in the data we collected by taking more than 5000 trades so far.
If you are a beginner trader still struggling to make money in the Forex and Stock Market,
this video will most likely make you see what makes you lose money in trading.
Out of all 5 categories that make up the TR Score, let's start with the win rate. In this
category, all strategies are rated based on the win rate they got when we took 100 trades
with them.
For example, the Aroon Trading Strategy got a breakeven percentage of 40 percent with
a 1.5 to 1 reward risk ratio. So the Aroon strategy got 4 in the win rate category. Similarly,
the worst trading strategy we have tested got a score of 3.3, and the best trading strategy
we have tested on the Trading Rush channel, got a score of 7.8.
In other words, the win rate score ranges between 3.3 and 7.8.
However, if you plot all of the win rate data as a histogram, you will see that most trading
strategies got a score between 4 and 4.9.
Remember, 4 is the breakeven point because we tested with a 1.5 to 1 reward risk ratio.
Why 1.5 to 1, and not 2 to 1? Because when we took 300 trades to find out what reward
risk ratio is the best, we found out that 1.5 to 1 is the sweet spot.
But the results get more interesting.
If we plot the same data using a pie chart, we will see that 76.5 percent of strategies
made a profit, 9.8 percent got a breakeven percentage, and only 13.7 percent actually
lost money. This means that 86.3 percent of trading strategies didn't make a loss. But
apparently, 90 percent of traders lose money in trading. We will get to that in a moment
but watch this.
If you look at the Easy to Use category, you will realize that most trading strategies
got a score between 7 and 7.9. This indicates that most strategies that actually made money
in the long run, were simple strategies that even your dog can understand easily.
The Reliability category is based on the number of false signals and other reliability issues.
A good score is anything above 4. And as you can see, most strategies performed well. If
you have watched the Strategies Tested 100 Times series, you saw that most strategies
that make money, in the long run, lowered their win rate and became very unreliable
near the end of the trends. That's why, even though most trading strategies made money
and got good win rates, their reliability score was slightly lower and close to breakeven.
This also means win rate is not the only thing you should be focused on, because some strategies
will give more false signals in a row, and some are more reliable in the long run.
The Consistent Profits Category shows if the profits graphs of the trading strategies,
or in other words, your profit graph with the strategy will look something mediocre
like this or something good like this. As we can see, the consistent profits filtered
the strategies even further. It shows that more trading strategies got messy profit graphs
that looked like a range market or even worse. That's another reason not to focus on the
win rate alone. But as we can see, there were trading strategies that made more consistent
profits, and the profit line was going more consistently in the upward direction.
The Quality of Trades Category shows how good the signals were, whether the entry signals
were too early or too late, and more. As we can see, most strategies gave okay trade signals,
many gave good entry signals, and some gave excellent trade signals.
But after looking at all of this data, we now know that most strategies make money
in trading, and most of them have just above breakeven percentage. In other words, the
trading gurus you watch, who claim to have a win rate in trading just above the breakeven
percentage, are probably the good trading gurus, because trading is not much different
than flipping a coin. When you flip a normal coin, there is a 50 50 chance of the coin
landing on heads. But if you find a way to win just 55 percent of the time, your long-term
success is guaranteed. The trading gurus you should be running away from are the ones who
claim to have high win rates like 80 percent in the long run with a high reward risk ratio,
because that's highly unlikely, and who plays a game where the opponent has an 80 percent
chance of winning and makes 2 times the money they invested?
80 percent with a high reward risk is possible in the short term, but the way to get a high
win rate like 80 percent in the long run, is by reducing the reward risk ratio. Occasionally,
you will see some ads claiming to have indicators that got 70 80 percent win rate after backtesting
even with a high reward risk ratio. They usually tell the truth, but they are also misleading.
You see, anyone who claims to have gotten a very high win rate like 80 percent with
a high reward risk ratio while backtesting, is probably backtesting the strategy on smaller
timeframes like 5 and 15 mins, which is a really bad idea and can lead to misleading
results.
You see, most of the time the price moves like this. It goes up, down, and in the sideways
direction. Most of the time it moves in the sideways direction. If you test a trading
strategy on this market structure, there is no problem as this is what you will see most
of the time in the live markets. But if you test a strategy on timeframes like 5 mins,
you are forgetting that there are a lot of timeframes above the entry timeframe, and
on some of these timeframes, the price makes sudden big moves in one direction. When the
price moves strongly in one direction on a higher timeframe, the 5 min entry timeframe
will be in one of the best uptrends you will see. This trend will be more like a market
crash. If you take trades in the direction of the market crash, you will win a lot of
trades and get a crazy high win rate. But every day is not a market crash. When the
price on the higher timeframe will slow down, the entry timeframe will most likely be trending,
but will no longer have that high win rate. That's one of the reasons I don't test scalping
strategies on smaller timeframes, the results will be misleading.
The best way to get a higher win rate in trading is by using the same higher timeframe thing
I just said. If you have seen the live trading videos on the Trading Rush Channel, or the
live trade analysis posts on Patreon, you know that I always analyze the higher timeframe
first, and trade in the direction of that higher timeframe.
But wait a minute, after taking 5000 trades, we found out that most trading strategies
make money in the long run, and the lowest win rate strategy didn't even lose 50 percent
of the account, how do people lose money in the Forex and Stock Market?
Well, beginner traders switch trading strategies once they lose a few trades with it. But since
most strategies only have just above average win rates, they switch again, and again, and
the cycle continues, when they should be focusing on money management and trading psychology.
I have already made videos on money management and trading psychology, and in the next videos,
we will see how to trade price action strategies like a pro. Subscribe to Trading Rush and
ring that notification bell to see that. Support Trading Rush on Patreon and get to see in-depth
trade analysis and trade opportunity signals. Thanks for watching.