The trading system has a win rate of 70%, but the profit is only 2%. There are four possible reasons for this situation:

1: The issue of the risk-reward ratio.

Many traders, in the process of building a trading system and in actual combat, overly pursue the success rate and neglect the risk-reward ratio. The profit-taking settings of the trading system are unreasonable, and the exit methods are too aggressive, which prevents them from holding on to profits.

They close their positions as soon as they make a slight profit, resulting in a general outcome of small gains and large losses, which leads to an unsatisfactory overall profit. As mentioned in today's question, the success rate is very high at 70%, but the overall profit is only 2%.

Solution: Modify the exit strategy of the trading system to improve the risk-reward ratio. For example, set a larger risk-reward ratio. It is recommended to set the risk-reward ratio of the trading system at 2:1, or greater than 2:1. This is a more ideal state, as a 2:1 risk-reward ratio will have higher stability and executability. Additionally, one can follow the trend to hold positions for a while, engage in some swing trading, and expand the risk-reward ratio.

2: The issue of execution.

Traders lack confidence in whether the trading system can make a profit, and there is a lack of execution in trading. Although the standards of the trading system are clear and reasonable, when holding positions, due to the fear of profit retraction or fear of losses, they hastily close their positions as soon as they make a slight profit, and they cannot obtain the profits they should have. When stopping losses, the losses are significant, and although the success rate is high, the overall profit situation is also not ideal.

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Solution: To solve the problem of execution, the most direct method is to review past trades. By reviewing and analyzing data, one can understand the profitability of the trading system, how many times it can lose at most, how long the drawdown period is, etc. Knowing that as long as one adheres to the execution of the trading system, profits can ultimately be achieved. When you have a deep understanding of your trading system, you will not have so much fear of the future, and your execution will greatly improve.

The so-called confidence in the trading system, or faith in trading, I believe, is all based on a large amount of data testing. Only by eliminating the fear of uncertainty in the heart can one generate the so-called faith.

3: The issue of the profit and loss cycle.It's possible that the time frame you're using to calculate profits and losses is too short. If your trading system has a 70% success rate but only yields 2% profit, it could also be because the market conditions during this period were not very favorable. If you extend the time horizon, you might achieve a better level of profitability.

I've encountered many friends with similar issues, which is the so-called recency bias, where they only pull out recent trading records and hastily conclude the profitability of a trading strategy. This is not objective or fair. The profit and decline cycles of a trading system are cyclical, and we must look at a longer time frame.

Solution: Collect more historical data of the trading system, such as statistics from at least 100 to 200 trades, before judging the profitability of the system. The larger the amount of data you collect, the more objective the results will be.

4: The issue of position sizing.

Many traders lack the concept of money management, and the positions they use are often inconsistent, which introduces a lot of uncertainty. Your overall success rate might be 70%, but when you lose, it could be with a heavy position, and when you win, it could be with a light position. In this case, the overall profit will definitely decrease.

This situation is common in practice. Many people start with light positions to test the waters, and after accumulating some profits, they become a bit overconfident. Then they increase their positions to gamble for a big win. As a result, when the position is increased, the psychological pressure becomes very high, especially the fear of losing. This leads to distorted trading, either missing out on profits or suffering heavy losses, which results in a loss of execution.

Solution: Establish reasonable money management rules. Trade with a fixed position size or use a fixed stop-loss amount. With a 70% success rate and a reasonable profit-to-loss ratio, it's actually quite easy to achieve profitability in trading.

These four points are essentially common issues that traders often encounter and are the practical problems we must face when building and improving our trading systems. I offer them for your reference, hoping they will be helpful.