Win – Loss Ratio 4 of 7

How do you establish a win-loss ratio?  How many trades do you need to take?  The more trades the better You will need at least 100.  We like to break in down in to groups of 20 trades and see what the ratio is on this small group of trades. 

If your ratio gets better after 5 groups of 20 trades then you are starting to know what your win loss ratio is.  If you start out at 4 wins 16 losses the first round and end up with 15 wins and 5 losses, you have become a better trader and more skillful at using your trading strategy.

This means you have 25% losses and 75% wins.  If your wins are larger and the loses are smaller, you will have a successful trading account.  This means you will lose 1 out of 4 trades.  If you execute all the trades exactly the same then you can pin point the problem areas in your trading.

By doing the same thing each time you place a trade, you are developing a mechanical trading style. You just see the trade and pull the trigger.

With this method of trading you will start to control your emotions

When you have a loss you need to still reduce the pain and emotions.  You need to make the money you lose not so valuable.  Also set a limit of how much you will lose before you go back to demo trading.

All of your testing should be done in a demo account to get the skills you need to trade well. It doesn’t hurt to go back to demo trading if you have a losing streak.  Do another 20 trades, get your rhythm back then return to live trading again.