I have always been curious about the way in which new commercial expert advisors are portrayed for the new forex retail trader. One of the things I have found common amongst almost all new expert advisor sellers is the fact that they always advertise high winning percentages as if this is the true mark of a profitable expert advisor. This of course, is aimed for unaware folks who are new to the forex market and are more likely to go for something that "wins a lot".
It is a very common mistake to assume that a higher winning percentage equals a higher amount of profits. This of course, has something to do with people's common sense. But it is not only how many times you win what determines if you are profitable or not. You have to take into account two things that certainly determine if the system is profitable or not.
First of all, the amount of profit you make per winning trade and the amount of money you lose per losing trade has a huge influence on the overall profitability of an expert advisor. Earlier this week, I asked twenty different people if a system that won 90% of the time was more profitable than a system that won only 10% of the time. Eighteen out of the twenty said that 90% made more money than 10%, something which can be, and is usually, totally wrong.
For example, most systems that claim to have winning percentages above 90% almost always say the truth. The problem is that each winning trade is small while every losing trade is huge. For example, if you win one dollar every time you win, but you lose 10 every time you lose, then one loss will equal 10 wins and even winning 90% of the time won't be enough for your system to be profitable. You have to take into account both the winning percentage and the profit to loss ratio and calculate the profit factor, which really determines and expert's profitability.
If you would like to learn more about expert advisor's characteristics and different commercial and free expert advisors I have tested and reviewed please consider buying my ebook on automated trading or subscribing to my weekly newsletter to receive updates and check the live and demo accounts I am running with several expert advisors. I hope you enjoyed the article !
It is a very common mistake to assume that a higher winning percentage equals a higher amount of profits. This of course, has something to do with people's common sense. But it is not only how many times you win what determines if you are profitable or not. You have to take into account two things that certainly determine if the system is profitable or not.
First of all, the amount of profit you make per winning trade and the amount of money you lose per losing trade has a huge influence on the overall profitability of an expert advisor. Earlier this week, I asked twenty different people if a system that won 90% of the time was more profitable than a system that won only 10% of the time. Eighteen out of the twenty said that 90% made more money than 10%, something which can be, and is usually, totally wrong.
For example, most systems that claim to have winning percentages above 90% almost always say the truth. The problem is that each winning trade is small while every losing trade is huge. For example, if you win one dollar every time you win, but you lose 10 every time you lose, then one loss will equal 10 wins and even winning 90% of the time won't be enough for your system to be profitable. You have to take into account both the winning percentage and the profit to loss ratio and calculate the profit factor, which really determines and expert's profitability.
If you would like to learn more about expert advisor's characteristics and different commercial and free expert advisors I have tested and reviewed please consider buying my ebook on automated trading or subscribing to my weekly newsletter to receive updates and check the live and demo accounts I am running with several expert advisors. I hope you enjoyed the article !
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