What Is Swing Trader's Accuracy Rate?

Apurva Sheth
This has been one of our most common questions since the launch of Swing Trader in March 2015. Many readers want to know the accuracy rate before signing up for the service.

The accuracy rate is the percentage of profitable trades out of the total recommendations. So if I made a total of ten recommendations and five of them close in profit, the accuracy rate is 50%.

There is nothing wrong in asking for the accuracy rate, but people can get obsessed with them. They believe the accuracy rate is the only factor that matters for successful trading. But that's simply not true.

Unfortunately, your average retail trader doesn't know the reality and is likely to remain in the dark. Don't worry; I'll throw light on this in just a minute...

Brokerages just add to the problem. Many of them have a strict mandate for analysts to have a certain accuracy rate. Analysts who do not perform are reprimanded.

Because they're always under pressure to maintain high accuracy rates, analysts will too often close profitable recommendations quickly and keep losing trades open too long hoping for a revival. In other words, they cut profitable trades too quick and allow losing trades to run too long. This is the exact opposite of what a smart trader does: He cuts losses short and let's profit run.

Looking at accuracy rates in isolation is wrong. The best way to look at accuracy rates is in conjunction with the risk-reward ratio.

The risk-reward ratio is the relationship between how much a potential losing trade will cost you and how much profit a winning trade will bring you. In simple terms, it is how many rupees your winning trade will earn for every rupee of risk you take.

For example, if you buy a stock at 100 with a stoploss of 95 and target of 110, your risk here would be Rs 5 (Entry price - Stoploss) and your reward is Rs 10 (Target - Entry Price). The risk-reward ratio here is ten divided by five, which is two.

Now you can use the risk-reward ratio to calculate the minimum accuracy rate. You can use this simple formula:
Equation One So if all your trades have a risk reward ratio of two, the minimum accuracy rate you need to breakeven is 33%.
Equation Two Yes, you read that right. An accuracy rate of one in every three trades is all you need to breakeven in trading. If you execute three trades with a risk reward ratio of two and an accuracy rate of 33%, your one profitable trade will earn two rupees and the two losing trades will lose one rupee each. So your losses from the losing trades will erode the profit from your winning trade.

An accuracy rate of more than 33% means that you will still be profitable on a net basis. Isn't that amazing?

Contrary to what most people think, you do not need a high accuracy rate for profitable trading. You need a trading system with a positive expectancy. If you can manage an accuracy rate of more than 33% with a risk-reward ratio of two, your trading system would have a positive expectancy.

So instead of asking the accuracy rate, the question should be whether the trading system has a positive expectancy.

At Swing Trader, we do have a positive expectancy. You can try out here...

Does your trading system have positive expectancy? Share your views in the Club or share your comments here.

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4 Responses to "What Is Swing Trader's Accuracy Rate?"
KT
09 Sep, 2016
If you really ask me no one can predict the market movements for short term trading until and unless a large bull starts picking up the stock and the common and retail investors follow them. Other than that what I have seen is that during the results are announced the people who claim to have the insight of trading will suggest investors to buy, now if you are lucky and the results declared are good you will make decent amount provided you exit soon instead of being greedy. It's just the big bulls who manipulate the market in short runs at least. Like 
John Kandrikal
31 Aug, 2016
I was disappointed with your swing trade trial offer, having lost not only the trial amount but also the value of the investment. And then I lost interest in the service and never looked at it again. Now that I happened to see your claim of 50% success, I wonder how people get manipulated??? Like 
Dattatraya Vaidya
31 Aug, 2016
When you say " The risk-reward ratio here is ten divided by five, which is two. ", I feel, it should be Reward-Risk Ratio and not Risk -Reward Ratio. Reward : Risk = 10 : 5 or Risk : Reward = 5 : 10Like (1)
kaycee
31 Aug, 2016
So, "What Is Swing Trader's Accuracy Rate?"?!?!?! I was shocked to note that after explaining convincingly, why one should look at Risk Reward ratio, positive expectancy, as against looking at only "accuracy", you had not put out the numbers (since inception, if I recollect since Jun2014 or thereabout?!) for "Profit Hunter"!! By concluding your piece with a abstract statement "At Swing Trader we do have positive expectancy", instead of putting out the actual numbers for metric you have explained in this post... So, what exactly is the "Profit Hunter's" number for, 1. accuracy (even if it were, close to zero!), 2. risk-reward ratio & 3. positive expectancy??Like 
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