A trader moves to a prop account and notices: win rate goes up, but overall results go down. How?
Possible reasons:
- Taking profit earlier to protect against daily loss limits. More small wins, but average win shrinks.
- Avoiding trades that could hit the loss limit, which may include some of the biggest winners.
- Moving stops to breakeven too quickly.
- Higher costs on the prop account.
Example:
- Personal account: 55% win rate, average win 6 pips, average loss 4 pips. Expectancy = 0.55 x 6 - 0.45 x 4 = 1.5 pips.
- Prop account: 65% win rate, average win 3.5 pips, average loss 4 pips. Expectancy = 0.65 x 3.5 - 0.35 x 4 = 0.875 pips.
Win rate went up 10 points, expectancy almost halved.
The fix is often to keep the original exit rules and adjust size to respect the prop limits, rather than changing exits.
Have you noticed your exits changing under prop rules?
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When win rate rises but expectancy falls under prop rules
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FXS London Scalper
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When win rate rises but expectancy falls under prop rules
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Shadow Trader
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Re: When win rate rises but expectancy falls under prop rules
Say a central bank holds rates exactly as expected. Nothing to trade, right? Then the currency moves hard anyway. What was the news?
Sometimes it is the dot plot or the rate projections. Sometimes it is a change in the balance sheet plan, a line about how fast bond holdings will shrink or grow. Sometimes it is a vote count, such as one member dissenting where none were expected. Sometimes it is a sentence added to or removed from the guidance.
In those cases the usual reflex of comparing the actual rate to the forecast tells nothing. Both match, and the calendar shows no surprise at all. Yet the repricing is real, because the market was positioned for a particular message about the future, not the present.
It is also why quiet-looking decisions can be nastier than ones with a rate change. A quarter point move that was fully priced is a non-event. A hold with an unexpected change of tone catches people sitting on the wrong bias.
How does anyone prepare for a decision like that when the calendar offers no number to compare against, and what do you check first when the rate itself is a non-event?
Sometimes it is the dot plot or the rate projections. Sometimes it is a change in the balance sheet plan, a line about how fast bond holdings will shrink or grow. Sometimes it is a vote count, such as one member dissenting where none were expected. Sometimes it is a sentence added to or removed from the guidance.
In those cases the usual reflex of comparing the actual rate to the forecast tells nothing. Both match, and the calendar shows no surprise at all. Yet the repricing is real, because the market was positioned for a particular message about the future, not the present.
It is also why quiet-looking decisions can be nastier than ones with a rate change. A quarter point move that was fully priced is a non-event. A hold with an unexpected change of tone catches people sitting on the wrong bias.
How does anyone prepare for a decision like that when the calendar offers no number to compare against, and what do you check first when the rate itself is a non-event?