Trade win rate IS NOT most important? Everybody likes a high win rate but there are two other dynamics of a trading strategy that are just as important. Every trader needs to be aware of these dynamics!
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The two important dynamics that are just as important as the win rate are:
-Average win amount
-Average loss amount
We explore this topic through using our top performing trade in 2022, the M3.4u trading strategy to provide specific details as to why.
The danger comes when a trader who is mostly focused on win rate experiences a lot of small wins, and then based on those wins, decides to substantially raise their capital level. When that happens, and they experience the inevitable large relative loss at that larger capital level, they tend to lose confidence and drop their capital level. This dynamic creates a situation where it will be very difficult to maintain profitability over time.
The discussion continues with the profit factor formula which states anything over one is profitable. The formula is:
Average win amount X Win rate – Average loss amount x Loss rate
In this example the M3.4u trading strategy has a profit factor of 5.6! Amazing!
The details in this episode you will NOT WANT TO MISS!
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