The Darvas Trader has an important post up about how the win/loss percentage a trader showcases can be very deceptive. As one of the leading acolytes of legendary trader Nicholas Darvas and the hubris-free trading style he developed, DT is must-read on this subject…
Let’s say two successful fund managers approach you with the opportunity to invest with them.
Both of these fund managers have been very successful over the past five years. In fact, they have both achieved an identical average annual return of 50%.
The key difference is that Fund Manager A shows his trade-by-trade record and you see that he has booked a profit on an incredible 80% of his trades!
Fund Manager B, on the other hand, actually had many more losing trades than winning trades. His winning percentage was just 25%.
With this information, which fund manager would you choose to invest with?
How you answer this question tells a lot about how successful you are as a trader.
The vast majority of people would quickly choose to invest their money with Fund Manager A. After all, he wins much more often than he loses. He’s obviously “better” than Fund Manager B, right?
Actually, professional traders would choose to invest with Fund Manager B.
Why? Because Fund Manager B is actually the SAFER fund manager of the two.
This is the “dirty little secret” of successful trading.
What makes the guy who “loses” more often a better bet? Head over!