*Originally published in French on objectifeco.com, July 27, 2010. The site was purged in 2016; this text survives only in the Internet Archive. Snapshot. Translated, not rewritten: what follows is the original argument as it was made, including what time has since proven wrong. Where that happens, you'll find a note from the desk, dated 2026.*
For those working in trend trading, the key to success lies in the size of their winning trades. It's obvious enough that those who fail are the ones who can't capitalise on their good ideas. They catch the right move, but they cut it too soon. The size of their biggest wins ends up insufficient.
Watching the best systems, or the best trend traders, reveals two essential things: all of their annual gains concentrate on a handful of trades, between 5 and 10% of the total number. The rest of their trades balance out, on average (gain equals loss).
If we push the analysis of these figures a little further, we know a trend trader has a win rate of around 30 to 40%, let's take a round figure of 35% for the example.
So they have 5% of very big winning trades; out of a total of 35% winners, that leaves 30% of small winning trades, and 65% of losing trades.
Their average gains balance out with their average losses. In concrete terms, that means the gains from 30% of their trades, the small or moderate wins, bring in as much as they lose on the other 65%.
You can see exactly where I'm going with this: all of it implies that their winning trades (setting aside the big gains) are, on average, twice the size of their losing trades.
This rule is almost immutable for anyone trading in trend.
To succeed at trend trading, you need:
- between 5 and 10% of your trades to be big winners (they're the ones that make the performance, so the bigger they are, the better you'll do).
- the average gains on the rest of your trades to be twice the size of your average losses.
Part of a series. This article belongs to Trading Styles: Every One Sends You a Bill. Related: Winning Traders, or Consistent Traders? and Counter-Trend Trading: The Key to Success. Background: trend following in the Ouinex glossary.
About the author. Samuel Rondot has traded financial markets since 1995 and is self-taught. He wrote a book on technical analysis, published a long run of trading columns between 2009 and 2016, and now runs the algorithmic trading desk at Ouinex.
Trading leveraged products carries a high risk of loss.
