This is basically 769 trades with no loss whatsoever. June July Mid August 2021. This is great right? Yes, but I never slept well because I knew my strategy had a flaw and I could get liquidated at anytime. This algo is one of the algo I run side by side with my hands free algo. I just turn it off when I know that I am at risk of being liquidated. Or, I turn it on when I am rather confident of the direction of the market overall.
So what is the point of having a 99% win rate if the 1% loss can erase the 99% profits?
In reality you will find that most traders or strategies varies between 25% and 45% win rate. You might think how come you can be profitable if you win only 25% of the time? Hang on I will prove it to you below.
My best strategy has a 45% win rate approximately. I have great strategies with 25% win rate also. Most manual traders (no algo) are at about 30 to 35% win rate. Some of these guys on Twitter (very rare) have over 50% win rates, same as Market Cipher Crypto Face, he’s got a higher than 50% win rate I think. He is a very good trader, and this is why he’s very wealthy, because he knows how to manually trade. This benchmark should give you a good idea of what to expect.
Another thing – the higher the time frame you use, the higher your win rate. For example, Bitcoin has a tendency to go up only – at least on the macro level, let’s say on the daily time frame. So right there you have what we call an edge, this is an advantage over the market. The advantage is a higher probability to go up than to go down. Because of that, you can easily develop an EMA crossover strategy that will win more than 50% of the time! EASY!
Now if you trade on the 5 min timeframe, you literally have a 50% chance for the price to go in either direction. You can try to play the trends here and there, check the momentum, whatever, but if you have traded Bitcoin for long enough, you should know as much as me that ANYTHING can happen at ANYTIME – and even if you were over the 200 EMA, even if Market Cipher showed a bullish divergence and even if you were at a major horizontal support, ANYONE can dump the market (e.g. a whale – or Elon tweeting) and go against all the odds. Because anything can happen, it is much harder to have a really high win rate.
So how can you make money if you win only 30% of the time?