publication

ASICS
www.tradersonline-mag.com 04.2014
F2) One Year Hit Rates – Q4 2009 to Q3 2010
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
% Profit % Loss
49% 54% 57% 58% 59% 60% 60% 61% 61% 62% 64% 64% 66% 71%
position is stopped out or not. It is
a fact that you cannot predict future
market movements – therefore the
risk of having a losing trade remains
in place. However, it is possible
to achieve long-term profits with
trading. If this is your goal you should
always remember that the hit rate is
not that important. The relation of
the average profit to average loss
– the pay-off-ratio – should be your
focus. The formula is:
0%
Payoff Ratio =
The graphic shows the hit rate of FXCM retail traders during the fourth quarter 2009 to the third quarter 2010.
Average Profit / Average Loss
It illustrates that the hit rate in the currency pair AUD/JPY was the lowest with 49 per cent and it was the
highest in the currency pair AUD/NZD with 71 per cent.
Based on the facts mentioned
Source: DailyFX Research Department
above and the Figures 2 and 3 it is
obvious that you should focus on the
improvement of the average size of
soon as it is one point in profit. The problem: The position
that is not achieving a profit results in a horrendous loss
– and the margin call and the wipe-out of the account
is only a question of time. The logical protection is the
placing of a stop-loss. But with the limitation of the size
of the loss the trader loses his influence on the hit rate.
Truth is, that wider stops reduce the probability of
being stopped out and “tighter“ stops are hit more often.
But at a higher level the market is now determining if a
winners and losers – and not on the maximisation of the
hit rate.
The displayed graphics are especially interesting if
you consider that the worst hit rate was 49 per cent, the
best was 71 per cent – during the same period of time.
However the profitability was negative – although the hit
rate was very good – and the traders lost money.
Therefore the author recommends targeting a payoff-ratio
of 2:1. That means that the average profit
should be twice as high as the
average loss.
F3) Average Profitability Q4 2009 to Q3 2010
It is necessary to approach the
subject of trading with a professional
70%
Q4 2009 Q1 2010 Q2 2010 Q3 2010
perspective and therefore deal
60%
accordingly with loss-trades.
50%
40%
30%
20%
10%
0%
The graphic shows the percentage of profitable retail traders of FXCM during the fourth quarter 2009 to the
third quarter 2010. It illustrates that less than 50 per cent of the FXCM retail traders were profitable in the
mentioned period (dotted red line) – despite the good hit rate (Figure 2).
Source: DailyFX Research Department
Conclusion and Outlook
The hit rate plays only a minor part
in professional trading. Whether a
trader is profitable or not depends
on the management and the relation
of average profits and losses. The
trader especially has control over
the average size of a losing trade
because he can use a stop-loss.
The next part of this series of
articles will deal with the reaction
of trading newbies and trading
professionals to loosing trades and
what you can learn from it. «
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