OK, in our last installment I showed you how a sample of a Forex trading system with a high percentage of winning trades could still be a losing system overall.
The whole point of the exercise was to get you to take a closer look at the performance results of trading systems that you are interested in pursuing. Now that you know that it is possible to lose money trading a system with over 90% winners, you’ll be able to look at the next advertisement for a Forex trading system much more objectively.
Let’s take another look at our example:
Trading System A Performance
Number of trades = 1000
% of Winning trades = 92%
% of Losing trades = 8%
Average Winning trade = $180
Average Losing Trade = -$2100
A few quick calculations tells us that this trading system had Total Net Profit of -$2,400
The Total Net Profit is an important factor in any trading system although it doesn’t tell the full story.
Here’s how the Total Net Profit is calculated:
Total Net Profit = Gross Profit – Gross Loss
In our example above these figures would be:
$165,600 – $168,000 = -$2,400
As stated above the Total Net Profit for this trading system is negative. This is important to note. As you can see, if the only information you originally had access to was the percentage of winning trades you would have started to trade a losing trading system. Now with a little more information such as the Total Net Profit we are clearly able to see that all the glitters is not gold.
Please note that it is unlikely that anyone would be openly advertising the fact that even though their trading system has a high percentage of winning trades that it is a losing system.
In the next part of our series we’re going to take the performance data we currently have at our disposal and generate a very important number to know in evaluating any trading system.
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