If someone talks up a trading strategy/signal/indicator/whatever by talking about it’s win rate (% of profitable trades) then huge alarm bells should be going off.
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It’s trivially easy to construct a strategy with a high win rate. Just trade randomly and set a tight take profit and a loose stop loss. Your win rate will be high (at least 70%) but your losses on the 30% losing trades will more than cancel out the gains on the winning trades.
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The corollary is that someone who only talks about the win rate of the strategy/indicator is probably hiding something about the distribution of PnL.
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show all p&l or GTFO, a good rule to have
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Good reminder. What is meaningful time interval to look at PnL. Monthly? Daily? Per trade?
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Great point. I think it's cool to test a signal 2 ways. First, you see if the distribution of future returns is noticeably different when the signal is on, vs the population. Then, you see what your port would look like trading it. shows u win rate and the dist of gains/losses
Thanks. Twitter will use this to make your timeline better. UndoUndo
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