CHAPTER 3
Probability and Percent of Profitable Trades
One of the most important factors to consider when researching a trading system
is its percentage of profitable trades. Counterintuitive as it might seem, a higher
percentage of profitable trades isn’t necessarily better than a lower number. It all
depends on what you’re trying to achieve with the system, and how it relates to the
average profit per trade, how often a trading opportunity presents itself, and how
long a typical trade lasts.
Together with the profit factor, the percent profitable trades is the only perform-
ance measurement that has any value when it comes to estimating the system’s future
performance that can be derived immediately from the single-market performance
summary produced by many off-the-shelf analysis programs. Again, this is assuming
the underlying logic is sound and the system can be considered robust. Normalization
should not matter. That is, for the number of profitable trades to be correct, you don’t
need to look at the results in terms of equal amounts invested or percentages.
It boils down to making sure that your system has a positive mathematical
expectancy. Make sure that the relative amount of your winning trades (or percent-
age winners) multiplied by the average profit from those trades is sufficiently larg-
er than the relative amount of the losing trades (or percentage losers) multiplied by
the average loss from those trades. If this value is above zero, the system has a pos-
itive mathematical expectancy, which is a key criterion for any trading system.
Calculating Profitable Trades
To calculate the percentage of profitable trades, simply divide the number of win-
ning trades by the total number of trades produced by the entry rule over the test
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