Sixty Percent

Asad Dossani
Early on my trading career, I thought of the market as a puzzle. Something that I just needed to work out how to put all the pieces together. And once I put the pieces together, I should make money every time.

But the market isn't like this. Even if we think of the market like a puzzle, it would have too many pieces to solve. Take a step back and think about how the market price is determined. The market price is determined by the buying and selling decisions of millions of traders and investors.

Now if you knew what those millions of people were thinking every time they made a trade, you'd know exactly what the price would do. But in reality, we can never know this. There are too many pieces in this puzzle.

Instead, successful trading requires another approach. Rather than think of the market as a puzzle, think of it as a random process. Think of the price movements as random, with some patterns to the movements. And our goal as traders is to find predictable patterns.

A predictable pattern is not a solution to the puzzle. It doesn't tell you what exactly the price will do. Instead, it tells you what the price is likely to do. Or, it tells you what the price will do the majority of the time.

As a traded more, I soon realized that I couldn't even come close to predicting most market movements. I discovered that the best trading strategies are correct around 60% of the time. What do I mean by this? Imagine you had a trade with an equal risk to reward ratio (the potential loss and potential gain are the same). If this were an excellent strategy, it'd be correct 60% of the time. And no more.

Anyone who promises you a trading strategy that does better than 60% is lying to you. It simply isn't possible. Not consistently over the long run.

Remember why this is the case. The market price is the result of the interactions between millions of market participants. And we don't know what each of them is thinking. There are so many variables and so many possibilities, and this is why market movements appear random.

At best, we can find predictable patterns in the random movements. The good news is that a 60% trading strategy is high enough to make money consistently.  It's not high enough to make money on every trade, or make money every week or even every month. But over a longer timeframe (over a year), its high enough to make consistent profits.

This is one reason I always advocate a long term view to trading profits. Because I know that even good trading strategies have losing months. It's simply because of the randomness in the markets. So always keep 60% in mind when you make your trades.

Are you surprised that success rates in trading aren't higher than 60%? Share your views in the Club or share your comments here.

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8 Responses to "Sixty Percent"
10 Mar, 2016
S Paul Choudhury
08 Nov, 2015
i fully agree with Assad Dosani on the above point( 60%)..Like 
08 Jul, 2015
I m interested in only equity. Not interested in commodity and derivatives, If equity information is not made available please allow me to quit the subscription.Like (1)
arun patkar
08 Jul, 2015
I have no kowledge of trading nor expirience. But this SIXTY PERCNT success over a period assures me that I can participate for July 2015.Like 
07 Jul, 2015
Basis the strategy of an equal risk to reward ratio, please advise why 'Profit Hunter' recommended to go long on crude on 29th (from last week my broker was advising to short crude, but I followed recommendation by Profit Hunter). The previous week's (June 22) recommendation was right, but we closed the short position too soon. Also, a long position in crude during last week carried higher risk as compared to the limited upside. Due to the above, please advise the rationale / strategy, for this recommendation. Please allow me to clarify that I'm asking the above question only for a clearer understanding of the reasoning going into the recommendations.Like 
07 Jul, 2015
"Anyone who promises you a trading strategy that does better than 60% is lying to you. ...." I wonder what made you make such a audacious statement, Asad, as if it's a mathematical certainty which could be proven beyond doubt. If your rate is 60% and you're happy with it, it's fine. That doesn't automatically mean no one has got a better figure in the long run.Like 
07 Jul, 2015
Rather than calling the market as random, it is appropriate to call it indeterminate since it is a product of the resultant reactions of millions of traders. However, the supply and demand principle holds the market in its grip irrespective of millions of traders.Like 
07 Jul, 2015
Even 40% sucess rate in trading strategy is sufficient to make money in the long run provided risk to reward is 1:2Like 
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