Expectancy versus Accuracy

Trading is not a one-shot deal. Rather, it is a never-ending series of trades that collectively should make money. Some will be winners and some will be losers. In fact, according to Tharp (Trade Your Way to Financial Freedom by Tharp, 1998), the best traders have a win rate of only 35%-50%. The best, most successful traders lose more often than they win. They are successful because their winners are much more profitable than their losers are unprofitable.

Many novice traders think that accuracy is the most important thing. They think that one who wins on 9 out of 10 trades must be a better trader than one who wins on only 4 of 10 traders. Professional traders realize that accuracy is irrelevant to success. What is important is the expected value of your trades – i.e., how much profit your trading system generates. According to Curtis Faith (Way of the Turtle: The Secret Methods that Turned Ordinary People into Legendary Traders by Faith, 2007):

“The ego is not your friend as a trader. The ego wants to be right, it wants to predict, and it wants to know secrets. The ego makes it much more difficult to trade well. If you want to be a great trader, you must conquer your ego and develop humility.”


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