Profitable transactions in an advantage - is it really that important?

Sometimes thinking about what our life looks like, one can come to the conclusion that victory is what we strive for and is really a key element of almost every field that surrounds us. This is how human nature is constructed, we like to win and we take defeats hard. If you want to succeed, you have to work hard. However, some hard work also manifests itself in "Winning". Regardless of whether we play sport, develop our career or invest in the market, our goal is to be on the right side more often and win rather than lose.

Relating this aspect to investing, I think that every trader wants to generate a high rate of positive positions, in other words simply winnings. A high, positive rate is often considered a prerequisite for regular earning. Is it really the right belief? In this article we will discuss and take a closer look at what rate of profitable transactions need to be achieved in order to systematically earn in the market.

The "profitable" ratio of positive items

At the beginning it is worth noting that it is very difficult to answer clearly the question what is the ratio of positive positions needed to earn regularly. There are opinions that the trader needs 40%, 50% profitable transactions for regular earnings. This is absolutely not true, and those who say so do not really know the basic laws governing the market. On forex the number of profitable positions is closely related to the given trading technique.

Some believe that if you lose more often than you earn, you have absolutely no advantage on the market. This is another incorrect statement. Market advantage is really much more than just the ability to earn. It covers many aspects ranging from discipline, sticking to rules, the adopted time frame, as well as the profit / risk ratio. Even factors such as the choice of specific instruments also have an impact on achieving advantage. If as a trader you merge everything into one, then you can say that you are "Win". 

The key to regular profits is really earning more money than you lose.

The myth of investment advantage

Everyone who enters the market wants to be successful - there is no doubt about it. However, it is important by what means it wants to achieve this. The key is to realize the basic principle:

You can lose more times than you gain, and still have an advantage on the market.

Even on my own example, I can say that there are months where the number of lossy positions far exceeds the profitable ones. However, by maintaining a favorable profit-risk ratio, you can still achieve a positive rate of return.

Be sure to read: How to manage capital

Profit to risk ratio

There is no such thing as an ideal factor. It all depends on what R: R generate your transactions. Let's take a simple example, assuming 10 open positions in a given month. Six of them ended in loss and four in profit. The profitability ratio is therefore 40%. Seeing this type of example, there will be people who find that with such statistics regular earning is not possible - a big mistake. Your advantage as a trader is a combination of many elements. It is never a matter of how many times you close a position with a profit, and how many with a loss.  Let's come back to our example again. The profitable transaction rate is 40% and the lossy rate is 60%. Now, given that you have achieved R: R at 1: 2, you can still earn a positive rate of return.

It can look like this:

Of course, as in the market, not every item must achieve the assumed + 2R. They will achieve one, the other will not, but there may also be ones that exceed this value.

Summation

The purpose of this article is to make you realize that you don't need to be effective at 80% to make money on the market. Remember, you don't have to profit all the time, or even most of the time. Your market advantage is a puzzle of many elements, and the ratio of profitable to lossy positions is just one of them.

As Stanley Druckenmiller, one of the most "seasoned" investors once said:

"It doesn't matter if you're right or wrong. The only important thing is how much you earn when you are right and how much you lose when you are wrong. "