The opinions expressed in these forums do not represent those of C2, and any discussion of profit/loss is not indicative of future performance or success. There is a substantial risk of loss in trading. You should therefore carefully consider whether such trading is suitable for you in light of your financial condition. You should read, understand, and consider the Risk Disclosure Statement that is provided by your broker before you consider trading. Most people who trade lose money.

Which style of trading is best - for you?

Just tossing this out in hopes of getting newer traders to carefully consider their real-world, psychological capacity for trading low win rate trend following systems.

For example, let’s say a particular trend following system has a profit factor of 2.6, an average win/average loss ratio of 1.95, and a winning trade percentage of 43%. Multiply those three stats together and you come up with a score of 2.18.

However, imagine that you must eventually (in fact, it’s a statistical certainty over a large sample of trades) endure TEN losing trades in a row and its accompanying system draw down along the road to a series of long-term, consistent, new equity highs.

Just imagine if your first ten trades with that same system were losers; no matter how fantastic its real-world performance has been, you’re going to need a tremendous amount of psychological fortitude to be able to stay with that system. I suspect that most traders would not be able to continue trading it, and in fact would completely abandon it after 4-6 consecutive losers.

Now imagine a scalping system that wins on 87% of its trades, has a profit factor of 2.2, and an average win/average loss ratio of .50. The score for this system is 0.957. You will, on occasion, endure as many as five losing trades in a row, but mostly the losses will come at a rate of one or two in a row before the equity curve turns back up.

You can make a lot more money (with the same amount of shares/contracts) by trading the first system. However, if you can’t muster the psychological strength needed to deal with ten losers in a row, then the system can’t possibly benefit you, and in fact may cause you a tremendous amount of psychological and financial harm.

You MUST always count the cost - the psychological cost - to your trading psyche before you subscribe to any system. Make sure you have the capital, guts, willpower and courage to see the race through to the end - or don’t start at all.

Self-esteem psychologist Nathaniel Branden (from his book Self-Esteem Every Day (1998)) offers this wonderful, ancient Spanish proverb that sums the above situation up very nicely:

"Take what you want - and pay for it.’

In other words, make you best judgment about a system and your ability to trade it consistently, up front.Then be willing to stay with it through the inevitable good - and bad - times that you will experience while trading it.

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