Why “win rate” may not matter as much as you think – Trader Q&A archives

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Aside from sharing our best swing trading stock picks, ETF picks, and teaching our proven trading strategy to our subscribers, one of the things we pride ourselves on is the top-notch customer service we provide to our clients. All paid subscribers of The Wagner Daily readily have access to the professional team of traders at MTG via our Live Trading Room, Live Q&A webinars, and e-mail for those who are unable to attend our live events. On this blog, we regularly share our replies to the questions asked by some of our members because we’re happy to share the knowledge with fellow traders.  Here is a question from a subscriber named Bob (edited only for grammatical accuracy):

Question: Rick, it seems the MTG performance results are pretty good, but one thing I noticed, the winning trades to losing trades ratio seems to be on the low side, but it looks like you had a strong showing this most recent qtr. at 80% winners on the individual stock trades which was your best showing on that metric.  Can you share your thoughts on this?  Also, you kept in stride with your performance during the year 2008 during the crisis and also the third quarter of 2011 through all that volatility.  That certainly looks great.

Lastly, the most recent quarter profits were $6500, but the mark to market shows $2766.  Forgive my ignorance on this, but what accounts for the difference?  I know it is going to hit me when you answer this question.
I appreciate your time and once I get the previous email answered (on complex order approach)  and this one, I think I am good to go and would pose any other questions during your open forums. Bob

Answer: Good morning, Bob. Depending on the type of swing trading one does, a 40-60% win rate (batting average) is normal.  A longer-term holding style may result in a 40% win rate, while shorter-term swings may come in well above 50%.  For what we do, an overall win rate of 45-50% is about right.  From quarter to quarter, this number jumps around because we are trend traders.  When we are right with the trend and our timing, the win rate will jump well above 60%.  If we are off in our timing by a little, the win rate will suffer and sometimes dip below 40%. However, the average percentage of winning trades to losing trades (win rate) may be much less important than many new traders realize. For our strategy, what matters more is the size of the average winning trade compared to the average losing trade.

Profitable systems should come in well above an avg. winning trade/avg. losing trade ratio of 1.0, with 1.5 to 2.0 being ideal.  Any number above 2.0 is a very solid system. This would mean that the average size of one’s winning trades is double the size of their average losing trade (in dollar value). As our historical performance results reflect, this is a ratio our ETF and stock newsletter frequently achieves because we are disciplined at quickly cutting losing trades, while letting the winners ride; hence, the end result is a consistently profitable trading system over the long-term, even with a batting average of just 40% to 50%. Below is a simple formula that can be used to rate your overall trading performance and compare its progress over time:

 (win rate x avg winning trade) / (loss rate x avg losing trade) = return for every dollar invested.

The most recent quarterly profits (based on our model trading account) were $6,500, but $2,766 of that total was calculated using unrealized profits from open positions on the final day of trading in the second quarter. This will be trued up based on actual closing prices in Q2.

Let me know if you have further questions.


Rick Pedicelli
MTG Portfolio Manager

To learn our disciplined swing trading and market timing system that has yielded consistent profits over the past 10 years, or to receive our best daily stock picks and ETFs, subscriber to The Wagner Daily, our nightly ETF and stock newsletter.

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