Why Win Rate Lies (and What to Measure Instead)
Everyone loves a high win rate. Every newbie dreams of having a 75%+ success rate.
But here’s the trap: your win rate only tells you how often you’re right, not how much you make when you are. Even worse, focusing on win rate puts you on the wrong path: trying to predict outcomes instead of focusing on what really matters: being profitable.
Let’s dissect this a bit.
As a quantitative trader, I know I can design hundreds of systems with a 75% win rate. It’s simple: take frequent, small profits and place wide stop losses. Voilà, your win rate looks great on paper.
The problem? Those small wins can’t save you when that one big loss hits. The math doesn’t forgive.
Building a truly profitable system is much harder, because you need to balance the trade-off between win rate and risk/reward. A system that wins often but loses big doesn’t have an edge, it just has good marketing. See the futility in chasing high win rates?
The real path is focusing on expectancy.
Expectancy not only accounts for win rate but also includes your average win and average loss, capturing the critical balance between how often you’re right and how much you gain or lose when you are.
Chasing a high win rate is like designing a race car and spending all your money on the engine. It’ll hit top speed on the straights (your wins), but without investing in decent brakes, you won’t look so great when the first corner arrives.
Everyone loves a high win rate. Every newbie dreams of having a 75%+ success rate.
But here’s the trap: your win rate only tells you how often you’re right, not how much you make when you are. Even worse, focusing on win rate puts you on the wrong path: trying to predict outcomes instead of focusing on what really matters: being profitable.
Let’s dissect this a bit.
As a quantitative trader, I know I can design hundreds of systems with a 75% win rate. It’s simple: take frequent, small profits and place wide stop losses. Voilà, your win rate looks great on paper.
The problem? Those small wins can’t save you when that one big loss hits. The math doesn’t forgive.
Building a truly profitable system is much harder, because you need to balance the trade-off between win rate and risk/reward. A system that wins often but loses big doesn’t have an edge, it just has good marketing. See the futility in chasing high win rates?
The real path is focusing on expectancy.
Expectancy not only accounts for win rate but also includes your average win and average loss, capturing the critical balance between how often you’re right and how much you gain or lose when you are.
Chasing a high win rate is like designing a race car and spending all your money on the engine. It’ll hit top speed on the straights (your wins), but without investing in decent brakes, you won’t look so great when the first corner arrives.
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