When people look at a trading system, they often ask, "What is its win/loss percentage?"  As I am growing to be a more seasoned trader, I am quickly seeing how naive a question that is.  Money management is all that matters.  That is the silver bullet to trading.

What is a winning trade?  If you get out after one tick, is that a winning trade?  If you have a target of 50 points and you only get to 49.75 before it turns against you, is that a losing trade?  Your system didn't hit the target, so that's a failure, right?  Not in this game.

Here is my definition of "A Winning Trade":  A trade where you didn't lose money, even if you didn't make a cent.  If you have a good entry (goes against you very little), have a 10 point target, and if you get out after 4 and 7 points (on two lots), but it failed to hit your target of 10 points, then that is still a winning trade.  You took profits on the first lot, brought your stops in to make sure the trade did not turn into a losing trade (one where you lost money) and you got out thinking that the target would not get hit (regardless if it were hit or not).  Even if you didn't take any profits and only moved your stops to break even on both lots, then your target would've been missed and you would've been stopped out at break even.  That's okay.  If you didn't lose, you won.  Just look onward to the next trade.  As my father says, this is a game of "mining"; you go in, look for the setup, take your piece, and get out.  You don't have to get it all, just enough.

My definition of "A Good Trading System" is: A good trading system is one where your entry is as close as possible to a turning point that gives you a move that is large enough to make money on.  That's it. You will rarely hit the extreme low or high, but if you can get close (in time and dollar amount), then that's all you need.  If you rarely hit your target with your system, that's okay.  That just means you need to take profits earlier (and perhaps look for better entries). What matters is that your typical achieved target is greater than 1.6 times to 2 times your typical risk.  For example, if you risk 4 points, you want to make somewhere in the neighborhood of 6-8 points (or more).  Don't risk 4 to make 1.  That means if you take a loss, you have to have 4 winning trades just to break even.  You want to be in a position where if you take a loss, you can make it back and more the very next trade.

So, what all this boils down to is, focus on entry and focus on money management (exit).  Don't let a winning trade turn into a losing one.

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