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6 Trading Statistics Every Forex Trader Should Know

To make money trading forex (or any market for that matter), you’re going to need statistics to improve your trading performance. When it comes to improving your trading performance, 9x out of 10, you should be choosing data over opinions.

I’ve trained thousands of traders, and often times, the difference between winning and losing money came down to one data point or statistic, and at most 2-3.

In today’s trading article, I’m going to share with you 6 trading statistics every forex trader (and all traders) should know. Let’s jump in…

Trading Statistic #1: You Better Have This

In a highly fascinating study, FXCM did an analysis of traders who had negative risk:reward ratios vs traders who had a 1:1 risk:reward ratio or higher.

For those of you who don’t know what the risk to reward ratio means (risk:reward), it basically measures the money at risk on your trade vs your potential reward. To give a few examples:

If I’m risking $1000 on my next trade, and my take profit is at $1000, then I have a risk:reward of 1:1
If I’m risking $1000 on my next trade, and my take profit is <$1000, then I have a negative risk to reward ratio, meaning I’m risking more than my potential reward
In contrast to that, if I’m risking $1000 and my take profit is $2000, then I have a positive risk:reward ratio of 1:2

Getting back to the FXCM study, they found that trading strategies with a negative risk:reward (i.e. <1:1) had only a 17% chance of making money trading.

Meanwhile, if a trading strategy had a 1:1 risk:reward ratio or higher, they had a 53% of making money (see image below).

risk-reward-profit-stats 2ndskiesforex

Another way to put this is: if your trading strategy has a negative risk to reward ratio, you have a 300%> chance of losing money vs a trader who is using a even or positive risk:reward ratio.

You should now be realizing two important things when it comes to setting profit targets and building a trading strategy:

#1: Make sure you minimally target a 1:1 risk:reward ratio on every trade
#2: DO NOT sacrifice your risk:reward ratio (and take it negative) just to increase your % accuracy

Trading Statistic #2: Risk of Ruin

Originally designed for casino games, the risk of ruin (RoR) is one of the most important trading statistics you need to know. To put it simply, the RoR will mathematically tell you in one statistic whether you are going to make money or blow up your account.

The risk of ruin statistic basically looks at your overall payoff ratio (or Avg.+R per trade), your % accuracy and your % risk per trade. Over a sufficient number of trades (100 or more), you can determine your risk of ruin and know – based on your current trading strategy, whether you will make money, or blow up your trading account.

Below is a table showing the risk of ruin statistics using 1% risk per trade, and measuring various payoff ratios and accuracy %’s.

risk-of-ruin-table-2ndskiesforex

If the box is red, you have a 100% of blowing up your acct. If the box is green, you’re going to make money trading. The number inside the boxes tells you the % chance you will blow up your account.

What you’re looking for in your RoR is 0, meaning you have a 0% chance of blowing up your account. Hence, if you want to make money trading, you’ll need to know your risk of ruin.

NOTE: We have a FREE risk of ruin calculator which you can use by clicking on the link

Trading Statistic #3: Trading Strategy Durability

The durability of your trading strategy is critical. This is because the markets are always in flux, which also means your accuracy %, and thus your performance will always be in flux.

Most profitable trading strategies operate within a range. So if your trading strategy is 60% accurate (on avg.), due to winning and losing streaks, you’re trading strategy is likely to fluctuate in terms of accuracy (~between 50% and 70% accurate).

Hence it’s important to have a strategy that can under-perform, yet still have enough margin of error to make money trading.

Now using the risk of ruin table from above, do you notice any patterns when it comes to profitability? When you go further to the right on the top/horizontal axis increasing your payoff ratio (or Avg.+R per trade), you’ll notice the number of ways you can blow up your account decreases, while the number of ways you can make money trading increases.

Another way of stating this is:

You have more ways to lose money at lower payoff ratios, and significantly less ways to make money trading.

The obvious correlate to this is:

The greater your payoff ratio, the more ways you can make money trading, and thus have a smaller window to lose money.

In short: try to build a trading strategy with a payoff ratio > 1:1. You’ll have a much easier time handling draw-owns and recover faster when you get back on track. And that = more durability.

Trading Statistic #4: Most Beginning Traders Are Poor Learners

Being that we have over 10,000+ students in our trading courses, we’ve been able to collect a lot of statistics on our students, particularly when it comes to trading performance, and how they train.

In deciding to conduct an internal study on how our students train and learn in our online trading courses, we found dozens of fascinating statistics. But one pattern we noticed is that most beginning traders are poor learners and have bad learning habits.

Why do I say this?

When students buy one of our online trading courses, one of the first things they receive is a welcome email. In this welcome email, we explicitly instruct them to watch the welcome video 1st because it contains key information on how the course works, what training models we find best and how to best use our trading methods.

How many students actually watch the welcome video? <20%. And how many students actually watch the lessons in order? 27%. From this, I think we can make the conclusion that most beginning/struggling traders are poor learners.

Now ask yourself this: do you normally just read books out of order in terms of chapters? Do you try to skip belts and skills when training in martial arts or learning to play an instrument? No, so why do you do this when it comes to learning how to trade?

There are many likely reasons, but the lesson should be clear: don’t sacrifice your learning process by letting your impatience win the day. Doing so decreases the chances of you making money trading.

Trading Statistic #5: Proper Risk Management

For my price action course members, they get a free skype analytics session with me whereby I analyze their trading performance over a number of trades, and help them find ways to make more money trading.

Many times, after 1-2 sessions, the student turns profitable. I recently shared an example of this on my twitter account with the student making +11% profit in 2 months.

2ndskiesforex-profitable-traders

Now out of the 1000’s of trading accounts I’ve analyzed from my students, how many of them are using consistent risk management on our first call? <30%! What I mean by ‘consistent risk management‘ is risking the same % equity per trade.

NOTE: To learn why we recommend a fixed % risk management system, hit that link.

To put it simply: if you’re not risking the same % equity per trade, then you could be risking more on your losses (and thus losing more), while risking less on your wins (and thus winning less).

That is outright masochistic. If you want a surefire way to blow up your account, constantly change the risk % per trade and just do what you want. However, if you want to bypass this avoidable pain and suffering, make sure you have a consistent risk management system and fixed % risk per trade.

Trading Statistic #6: How to Absolutely Fail At Trading

Over the last 12 years, I’ve gotten to review thousands and thousands of my students accounts, statistics and trading performance. I’ve taught many students to make money trading and become consistently profitable traders.

How many of my students were able to make money trading without proper risk and money management? ZERO! No explanation needed.

Hence, if you absolutely want to fail at trading, then just risk what you want without any data, math or statistics to support your decision.

In Closing

If you want to make money trading, you’ll need to know your stats and understand what the data is communicating about your trading performance. There are many ways to get sufficient data and statistics about your trading performance. Two free services you can use are myfxbook and fxblue.

I’d suggest getting your account connected to one of those services and looking at your data to see where you’re at. This will help give you a partial roadmap of how to become a profitable trader.

But beyond getting the stats, most likely you’ll need an experienced trader and trading mentor to evaluate your performance, and give you quantified feedback on how to improve your trading. That + the feedback and guidance they can give you to correct your trading mistakes can often be the difference between winning money, and losing money trading.

If you’d like to get actionable guidance on how to become a better trader, click here to join my price action course, giving you access to me, the members trade setups forum, and over 60 hours of trading lessons to improve your performance.

With that being said, por favor make sure to share your feedback with a comment below.

Until then, may you find real progress in your trading performance and mindset.

Money Management, Performance & A Secret

Did you know you could have a 50% accuracy ratio for your trading, always have a 2R profit target, and still lose money? Its true, (although its a low probability), but remains true nonetheless. How? Because of two key factors: % account risked and your risk of ruin ratio. At a bare minimum, you have to understand 4 things about your trading to know mathematically if you will make money.

What are those 4 things? That is what this forex money management plan article is going to cover in detail. I will begin by discussing what these 4 things are, and how not knowing them will hurt your account. Then I will describe the risk of ruin formula and why its essential for your trading performance. I will end by sharing a forex money management secret that will impact how you think about money management and risk.

The 4 Things You Need To Know
Any article discussing forex money management plans and performance without discussing risk of ruin is incomplete at best and detrimental to your account at worst

Why?

Because at a bare minimum, you need to know 4 things about your trading to know if you will make money or not. They are the following;

1) Risk to Reward Ratio
2) Accuracy
3) % Risked Per Trade
4) Your Risk of Ruin

Simply put, you could be trading a 1:2 reward to risk ratio, and still lose money. You could know #1 along with your accuracy, and still lose money. You could know your % risked per trade and still lose money. But if you know those three + #4, you can mathematically know whether you will make or lose money.

How?

The Risk of Ruin Formula

What is the Risk of Ruin formula, how does it apply to my trading performance?
The risk of ruin formula is designed to communicate statistically if you will make or lose money trading. You can mathematically know for a fact if you will make, or lose money by knowing your risk of ruin. But you cannot calculate the risk of ruin formula without three key pieces of data. They are:

1) Risk to Reward Ratio
2) Accuracy
3) % Risked Per Trade

Combined together, these above will give you your risk of ruin (ROR). The ROR is a number representing the % chance you will ‘ruin’ your account, e.g. blow it up. Not a pleasant thought, but a highly useful piece of data and essential for your success.

What you want is a 0% ROR (risk of ruin) or a 0% chance of blowing up your account. The inverse of this is you mathematically will make money.

Now remember the first thing I said about how a trader with 50% accuracy always having a 2R reward could still lose money? Let me share why via two risk or ruin tables below.

Trader A Risking 10% of Account Equity ROR Table

Win Ratio %	Payoff Ratio 2:1 (2R Profit)
Win Ratio 40%	14.2
Win Ratio 45%	3.41
Win Ratio 50%	.813
Win Ratio 55%	.187
Win Ratio 60%	.0401
Win Ratio 65%	0

Looking at the chart above, by risking 10% of your account equity per trade, having a win ratio of 50% and a payoff ratio of 2:1 (2R per trade), you have a .813% chance of ruining your entire account. Although this is a low probability, it is still a possibility. You actually have to be 65% accurate to mathematically ‘know’ you will make money.

Now lets take the same win and payoff ratios (50% / 2R), reduce the risk per trade to 5% of your total equity, and see how the numbers change.

Trader B Risking 5% of Account Equity ROR Table

Win Ratio %	Payoff Ratio 2:1 (2R Profit)
Win Ratio 40%	2.03
Win Ratio 45%	.116
Win Ratio 50%	0
Win Ratio 55%	0
Win Ratio 60%	0
Win Ratio 65%	0

In this second table, only those with a 40-45% accuracy have a mathematical chance of losing money. But those at 50% accuracy have a zero % chance of losing money, thus mathematically will make money. What is the key difference? The % risked per trade. This is why it is absolutely critical to your money management strategy to use a % equity risk model, not a meaningless ‘dollar risked per trade’.

Also notice how risking 5% per trade instead of 10% drastically changed the accuracy levels needed to make money? Trader A needed a 65% accuracy level to be certain they could make money, while Trader B only needed a 50% accuracy level – a 10% difference!

It should also communicate an essential point;
Any forex money management strategy article or website talking about trading without mentioning the above, is giving you totally incomplete information about money management which could kill your account. In essence, you could be trading blind to the numbers which hugely determine your success or failure in trading.

A critical piece of information? Absolutely. Something you’d want to know? I’d certainly hope so.

One Last Point (A Secret About Money Management)
There is one thing almost never talked about when discussing trading money management strategies. It is a huge point why working with a % equity model is far superior to ‘dollar risked per trade’. And it has to do with your mind.

If you are setting the risk per trade based on a ‘dollar value’, that dollar value actually means more to your mind (and thus emotions) than an ‘neutral’ % of your account. Why? Because you spend money in terms of dollars (or euros, or whatever your local currency is), not %’s of your account.

So if you are making a trade, and thinking ‘Oh, I’m going to risk $5,000 on this trade‘, that very thought of ‘$5,000’ can (and most likely will) conjure up a host thoughts about rent, bills, car payments, or a wave of other things.

These thoughts are far more likely to engage any fears you have about the ‘dollars you are risking per trade‘ than a neutral 1 or 2% which has ‘no reference‘ to how much you spend, may need, or what it could buy. In essence, there is no ‘trigger‘ in your mind about % risked per trade, but there certainly is about the ‘dollars risked per trade.’

By shifting your trading money management strategy and trading mindset towards a % equity model, your mind will be more focused on the actual trade. This is opposed to dealing with the thoughts ‘Oh, that $5,000 is a lot of money to me. I’m about to risk $5,000 which could pay for my rent, my mortgage, or my debts‘.

This mind trick actually helps to reduce the emotional triggers when trading, thus leaving your cognitive mind less burdened with thoughts of the money, and more focused on the trade. This is a huge reason why a % equity model is far superior from a trading mindset perspective than a ‘dollar risked per trade’ model. Food for thought, but I hope this clarifies the huge advantages and information available when thinking about forex money management in terms of a % equity of your account.

Forex Strategies, Trading Mindset & Risk Management

Forex Trading, Ted Williams, & The Little Details Pt. 2

Last week I talked about the importance of looking at the details and refining one’s trading game in Forex Trading, Ted Williams, & The Little Details Pt. 1 article. All highly skilled professionals realize paying attention to the details pays dividends, and often leads to the difference between being good and great. Today is the continuation of that article, where I will be sharing how making a small trading adjustment in my trading could lead to a six-figure change in profits per year.
But before I get into one small adjustment I need to make in my personal trading, I want to discuss a few amazing examples of how Ted Williams really paid attention to the details, and how these small things separated him from the rest.

Attention to Details
Ted was known to be obsessive about his hitting skills and had made several adjustments which allowed him to understand hitting better than most of his time. Here are some of the details below;
-He traditionally used a much lighter bat than most of the heavy hitters (sluggers) back in the day. To test how sensitive he was to the lightness of the bats, he was once presented with 4 bats, 3 weighing 34 ounces, and one weighing 33.5 ounces. Most people on the planet now could not tell the difference between 34 and 33.5 ounces, a .5 oz difference, or to put this in context, a 1.4% difference in the weight of the bat (.5oz / 34 = .014, or 1.4%).
Yet Ted was able to consistently tell the difference and identify the lighter bat each time.
-Ted used to warn his teammates to avoid leaving their bats on the ground. Since the bats were made of wood, this would cause them to absorb the moisture in the dirt or grass, and thus become heavier, which would slow their swing down. How would he have known this unless he was sensitive to all the details?
-After he retired, in a Sports Illustrated article, he was able to demonstrate how swinging at a pitch, just one baseball width outside the strike zone heavily affected his batting average, and he divided the strike zone into 77 baseballs, with each baseball being = to a particular batting average for each pitch in that location.
When reading the above examples of how Ted paid attention to the details, you can see why he was such a great hitter and baseball player. All of those small little details, while they may seem insignificant on their own, led to a huge difference between him and everyone else.

Paying Attention to Details in Trading
This is exactly the same for trading. Did you know using the risk of ruin tables, if you were 35% accurate, risking 2% per trade, and always taking profits at 2x your risk, you would have an 8.37% chance of blowing up your account?
But reduce your risk to 1% per trade, and the chance of you blowing up your account is only .7%, which is improving your chances of being profitable 119x?
That is quite a huge difference, all with one small detail.
SIDE NOTE: This is also the reason why we always measure risk in % terms, not in dollars terms. Professionals don’t measure risk in terms of dollars, they do it in terms of %’s, because this is where they can use the risk of ruin and math to guide them about trading performance as dollars are relative to you.

The One Details Which = A Six Figure Difference
I was reviewing my trading journal one day in March this year, and noticed a behavior continually repeating itself. I had been making sure to mark in my journal since 2012, every time I entered at market, but also noting if I was entering a bit early in relationship to the system entry. I marked it with the code EM (‘entered at market’) / HOP (‘hit original price’).
Several weeks ago, I noticed this happening several times in the same week, so I started to go back through my entire trading journal over the last 12 mos to see how many times this happened. The answer….
78% of all trades entered at market, would have executed at the original price the system gave the entry at. This occurred a total of 242x in the last 12 months.
3.6 Pips
I decided to compile a few more stats to really get into the details and see what kind of effect this was having on my trading.
The average entry was 3.6 pips less than my system entry price.
Now 3.6 pips may not seem like a lot, but it has a significant effect on your trading. To give an example, lets say you have the following trade setup with my system giving me the stop and take profit (limit) levels using the following data below;
Long EURUSD at 1.3003 (entered 3 pips early at market)
Target = 1.3103 (100 pips)
Stop = 1.2953 (50 pips)
Total reward to risk ratio is 2:1
But lets adjust this by just 3 pips, meaning I entered at 1.3000, still had the stop at the same level (1.2953) and target (1.3003) assuming they were my targets based on the original price action system numbers.
This translates into the stop being 47 pips, and the target being 103 pips, or a 6 pip difference. This also increases the reward to risk ratio from 2:1, to 2.2:1, or a 10% difference just in the R:R ratios.
This 3 pip earlier entry, was in reality a 6 pip difference, but for me, the number was 3.6 pips, so a total of 7.2 pips of difference in performance. Assuming a 50% win ratio, 7.2 pips x 242 EM/HOP (entered at market/hit original price) would result in a 1742.4 pips difference. Based on the average lot size, this would = ~200K USD. Even if we halve this performance, it would still be ~100K USD, which is a huge difference in performance, per year!

The Difference Between…
After getting over the initial shock of how much of a difference this small detail meant in my performance, I have come to a greater understanding of how important the small details are in trading and performance (in anything). Often times, these small details can be the difference between losing and winning, between breaking even and making money, between being just good or great.
Thus, make sure to apply a fine comb to your trading account performance and journal, to mine the little details which could be separating you from losing and winning, or making a little money to a lot. You cannot underestimate the power and difference a few small pips, or one small bad habit can have on your trading.
All highly skilled professionals pay attention to these small details, as they can truly create a world of difference in performance. Jimmy Hendrix realized this when adjusting his guitars. Ted Williams also realized this when it came to baseball and batting.
The question then remains, will you take the time to find the little details which could be holding you back? How much is it worth to you, to take a few hours away from the screen time, the beach, or the bars drinking, so you can increase your performance by a huge amount? The benefits could last you a lifetime, and it’s possible this could be one of the best reward-to-risk plays you ever embark on.

Forex Strategies, Price Action Trading

The Risk of Ruin Tables You Should Know

Many people will talk about their forex Risk-Reward ratios such as it’s important to have 2:1, 3:1, or whatever to one ratio, but this is just the tip of the iceberg of risk-management and leaves you uninformed and un-empowered. You can actually have a 3:1 Reward-Risk ratio and lose all the money in your account. You can also have a 1:1 Reward-Risk ratio and make money day in day out.

How can you understand the difference between the two? Through the Risk-of-Ruin formula.

We did a 1hr webinar on Risk Management, the Risk of Ruin formulas and how critical they are, whether you are trading Price Action Strategies, Ichimoku Kinko Hyo, or any other system.

I got many requests for the information contained in the Risk of Ruin formulas so I am posting all the tables here so you can see the mathematics of your trading and whether you have the numbers in your favor. Here they are below:

Risk of Ruin Formula using 10% Risk / Trade

ROR% with 10 capital at risk
Win Ratio %	Payoff Ratio 1:1	PR 2:1	PR 3:1	PR 4:1	PR 5:1
Win Ratio 10%	100	100	100	100	100
Win Ratio 15%	100	100	100	100	100
Win Ratio 20%	100	100	100	100	46.6
Win Ratio 25%	100	100	100	30.5	16.3
Win Ratio 30%	100	100	27.7	10.2	6.1
Win Ratio 35%	100	60.9	8.2	3.53	2.33
Win Ratio 40%	100	14.2	2.5	1.24	0.888
Win Ratio 45%	100	3.41	0.761	0.426	0.329
Win Ratio 50%	100	0.813	0.226	0.141	0.116
Win Ratio 55%	13.4	0.187	0.0635	0.0438	0
Win Ratio 60%	1.73	0.0401	0	0	0
Win Ratio 65%	0.205	0	0	0	0
Win Ratio 70%	0	0	0	0	0
Win Ratio 75%	0	0	0	0	0
Win Ratio 80%	0	0	0	0	0
Win Ratio 85%	0	0	0	0	0
Win Ratio 90%	0	0	0	0	0

Risk of Ruin Formula using 5% Risk / Trade

ROR% with 5 capital at risk
Win Ratio %	Payoff Ratio 1:1	PR 2:1	PR 3:1	PR 4:1	PR 5:1
Win Ratio 10%	100	100	100	100	100
Win Ratio 15%	100	100	100	100	100
Win Ratio 20%	100	100	100	100	21.7
Win Ratio 25%	100	100	100	9.33	2.67
Win Ratio 30%	100	100	7.67	1.03	0.372
Win Ratio 35%	100	37.1	0.672	0.124	0.0544
Win Ratio 40%	100	2.03	0.0623	0	0
Win Ratio 45%	100	0.116	0	0	0
Win Ratio 50%	100	0	0	0	0
Win Ratio 55%	1.81	0	0	0	0
Win Ratio 60%	0	0	0	0	0
Win Ratio 65%	0	0	0	0	0
Win Ratio 70%	0	0	0	0	0
Win Ratio 75%	0	0	0	0	0
Win Ratio 80%	0	0	0	0	0
Win Ratio 85%	0	0	0	0	0
Win Ratio 90%	0	0	0	0	0

Risk of Ruin Formula using 2% Risk / Trade

ROR% with 2 capital at risk
Win Ratio %	Payoff Ratio 1:1	PR 2:1	PR 3:1	PR 4:1	PR 5:1
Win Ratio 10%	100	100	100	100	100
Win Ratio 15%	100	100	100	100	100
Win Ratio 20%	100	100	100	100	2.2
Win Ratio 25%	100	100	100	0.266	0
Win Ratio 30%	100	100	0.163	0	0
Win Ratio 35%	100	8.37	0	0	0
Win Ratio 40%	100	0	0	0	0
Win Ratio 45%	100	0	0	0	0
Win Ratio 50%	100	0	0	0	0
Win Ratio 55%	0	0	0	0	0
Win Ratio 60%	0	0	0	0	0
Win Ratio 65%	0	0	0	0	0
Win Ratio 70%	0	0	0	0	0
Win Ratio 75%	0	0	0	0	0
Win Ratio 80%	0	0	0	0	0
Win Ratio 85%	0	0	0	0	0
Win Ratio 90%	0	0	0	0	0

Risk of Ruin Formula using 1% Risk / Trade

ROR% with 1 capital at risk
Win Ratio %	Payoff Ratio 1:1	PR 2:1	PR 3:1	PR 4:1	PR 5:1
Win Ratio 10%	100	100	100	100	100
Win Ratio 15%	100	100	100	100	100
Win Ratio 20%	100	100	100	100	0.0485
Win Ratio 25%	100	100	100	0	0
Win Ratio 30%	100	100	0	0	0
Win Ratio 35%	100	0.701	0	0	0
Win Ratio 40%	100	0	0	0	0
Win Ratio 45%	100	0	0	0	0
Win Ratio 50%	100	0	0	0	0
Win Ratio 55%	0	0	0	0	0
Win Ratio 60%	0	0	0	0	0
Win Ratio 65%	0	0	0	0	0
Win Ratio 70%	0	0	0	0	0
Win Ratio 75%	0	0	0	0	0
Win Ratio 80%	0	0	0	0	0
Win Ratio 85%	0	0	0	0	0
Win Ratio 90%	0	0	0	0	0

Hopefully after viewing the Risk of Ruin tables and underlying forex trading risk mathematics, you will begin to look at your trading differently, analyze whether you have the mathematics in your favor to make money day in day out, or are setup to lose money. Understanding the mathematics of risk can make all the difference in the world so make sure you study these numbers in relation to trading your rule-based system.

We have a Risk of Ruin Calculator available here, for your convenience.

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