What’s a Good Trade Winning Percentage?

When it comes to trading, many people fixate on their winning percentage as a measure of their success.

However, it’s important to understand that a high winning percentage doesn’t necessarily mean you are making money, and a low winning percentage doesn’t necessarily mean you are losing money.

Key Takeaways – Good Trade Win Percentage (Trade Win Ratio)

• Winning percentage alone is not a reliable measure of trading success. Focus on expected value, which takes into account the probability of different outcomes and calculates the average profit or loss per trade.
• Professional traders often have winning percentages in the range of 50-55%, emphasizing the importance of managing losses and ensuring that winners outweigh losers.
• To gain an edge in trading, it can help to employ advanced data analysis models, utilize quantitative tools for market evaluation, acquire expertise in a specific market, have an information advantage, and/or try to adopt a systematic approach to minimize errors.

Expected Value > Winning Percentage

Expected value is a more accurate measure of your trading success.

Expected value is the average amount of money you expect to make (or lose) per trade, taking into account the probability of different outcomes.

For example, let’s say you make 10 trades and win 6 of them, with an average profit of $100 per winning trade and an average loss of $50 per losing trade. Your winning percentage is 60%, but your expected value per trade is:

(0.6 * $100) – (0.4 * $50) = $60 – $20 = +$40

So, your expected value per trade is $40, which means that over the long run, you can expect to make $40 per trade on average.

For example, there are short volatility option strategies that have win rates as high as 90% or better, but they wipe you out completely when you’re wrong.

This is why expected value is so important. It teaches you not to simply bet on what’s most likely.

But when it comes to win rate, what do professional traders say?

Professional Traders Win Rate

‘’I compile statistics on my traders. My best trader makes money only 63 percent of the time.

Most traders make money only in the 50 to 55 percent range.

That means you’re going to be wrong a lot. If that’s the case, you better be sure your losses are as small as they can be, and that your winners are bigger.’’

– Steve Cohen, Point72 hedge fund founder

How to Have an Edge

For regular trades where better than 50% suggests some type of “edge” in terms of alpha-generating strategies, how do you produce an edge?

Generally, it’ll come down to something like this:

• Using advanced models based on data analysis
• Leveraging quantitative tools to evaluate extensive cross-asset market signals
• Mastering the nuances of a specialized market through experience
• Better access to information
• Making fewer errors (which usually means a more systematic approach)

We have more on developing an edge in this article with specific examples.

When Trading Underlying Securities

When trading only underlying securities (i.e., no options or non-linear instruments that can make win percentage fairly meaningless), a winning percentage of 55-60% is generally considered very good.

However, this depends on the size of your wins and losses.

If your wins are much larger than your losses, on average, you may be profitable with a lower winning percentage.

Conversely, if your losses are larger than your wins, you may need a higher winning percentage to be profitable.

Overall, it’s important to focus on expected value rather than winning percentage.

This means making sure your average wins are larger than your average losses and that you are consistently making profitable trades over the long run.

This video talks about how a high winning percentage isn’t necessary if you have good risk/reward with your trades:

The Truth About Win Rates In Trading

What Percent of Your Months Should You Have Winning Periods?

We looked at a balanced portfolio allocation for this exercise.

Portfolio Allocation

Portfolio Summary Statistics

You can see in the table below that we were ahead in about 60% of our months.

Portfolio Metrics