Choosing Your Winning Streaks and How That Affects Your Trading Results

Your chosen winning percentage defines the probability and the frequency of your winning and losing streaks. A high winning percentage comes with the probability of longer winning streaks, but at the cost of relatively small gains per trade and bigger losses on the few losing trades. Conversely, a low winning percentage gives you the probability of longer losing streaks with small losses per trade, but much larger potential gains on the few winners. The following graphics depicts this relationship:

If the winning percentage you have selected is above 50%, you will experience winning streaks more frequently. If your winning percentage is below 50% you will experience losing streaks more frequently. While either side can be profitable, investors and traders are almost never profitable unless they know which side of the spectrum they operate in. Knowing your natural trading style helps you understand where on this spectrum your natural strengths and life experience will give you the best results. This lesson has divided the spectrum into five probability profiles for greater clarification, though all future lessons will refer to only three.