When you first start trading, especially quant type trading, you learn about Win Rates.
This is the percentage of time you have a winning trade. If your trade is successful half the time, your win rate is 50%.
What you quickly learn is that you don’t need a big win rate to be a great trader. Sometimes you can win 20% of the time and still be God Tier — the key is making your winners big and your losers small.
This is why it’s important to measure your progress with different metrics. How much risk did you use to get that P&L? What is the profit factor of your strategy? How much bigger are your winners than your losers?
The ability to execute this type of analysis is what makes a trader not only successful, it makes them sustainable. There is a graveyard of amazing traders out there, littered with stories of how great they could have been and how much talent they naturally have.
If you don’t know WHY you’re a good trader, if you don’t know where your power zone is, you will eventually lose all your money.
I bring this up because we are at a phase of the market where Win Rates start to become less popular. As traders begin feeling the first taste of a bull impulse, they stop caring about how often they win and start salivating at the prospect of getting a few huge winners.
These are the moments when people attempt to make it all back in one trade. I write this post to help you consider an alternative strategy, one that I believe will help you stack wins until the proper time arrives to go big.
I use four separate algorithms to model my trades. Some are mean reversion, some are trend based. To the outsider, this sounds very compelling — just follow the algo signals and boom, you print money.
That’s not quite how it works. I could give you the exact same data I have and you would probably fail to make money over the long term. This isn’t because you’re a bad trader, it’s because there is nuance in the trading data that is impossible to code. The decisions that come from objective data is where the money is made. Experience is the only algorithm that gets more accurate over time. I have experience with my system, you have experience with yours.
On any given day, especially with shorter term futures trading, the name of the game is maximizing profit factor. That is, taking as many trades as possible that have the highest profit potential.
This threshold is up to the trader but in bull markets, particularly crypto bull markets, it’s all gas no brakes. Profits are not measured in win/loss, they are measured in huge wins or small wins.
The underlying trend creates a false sense of safety. It shifts the risk profile from being militant with capital preservation to being aggressive or full degen. In hindsight, it’s always hilarious to think being all BTC is the “conservative” path.
I often tell people that the reason you trade a job for self-employment is because you want to trade having a floor and a ceiling for not having a floor or a ceiling. In other words, you are removing the governor from your engine — you can fail completely or win huge, two options that employment hold you from realizing fully.
Bull markets do the same thing. They “protect” you from the floor bottoming out. Dips get bot. Marginal buyers flood into Coinbase. You have unlimited upside with limited downside. Bad habits run amok, slowing hardening into habits that will take years to break.
We are no longer in a bull market the way we were in 2021. Resist that idea at your own peril. We live in a traders market and until a few important things change, that’s how it is.
This is why you must go back to thinking about Win Rate and not thinking about Profit Factor. You need to stop thinking about getting big wins, you need to think about very high probability trades executed flawlessly.
The upside potential is now capped, the downside potential now infinite.
I get DMs from people asking about the war situation, looming regulations, inflation, stocks and everything in between. What are your thoughts on ______?
What these people are really asking is “how strong is the floor below me?” How hard can they go after the Profit Factor in times like these? Clarity is often confused with improved trading conditions. Just because you can model the risks doesn’t mean they’re not still risks.
Put another way, the correct way to think about our environment is to accept that there are more potential ways your strategy can get blown the F out. That’s it. Is there volatility -> Yes. That’s what’s coded into the algorithm now.
This means that a Profit Factor driven strategy is more at risk than it has been in the past. The chances of a big winner are lower, the chances of a big loser are higher.
Thus, we must adapt and focus on Win Rate. We must wake up each day and not look at profit potential but at probability of success.
For me, this means relying on more Conviction Points, specifically quantitative Conviction Points, than I would previously. Being aggressive is not going to be rewarded — being smart will be.
I wake up and have a checklist of 10 things that would get me to leg into a trade. I used to use 2–3 of them to pull the trigger. Now I use 6–7.
I am focused on setups that offer 80–90% chances of winning. I care less about the size of the move, I care about the probability of it doing what I expect. This includes having acceptable levels of downside in the event of a black swan.
You should start thinking this way too. In market conditions like this, right when you think the bull impulse is back, you get blown out. That’s what happens outside of Bull Markets.
The last two days I executed a high probability trade and collected 12% on ETH and AVAX. This morning I look at the charts and feel the pull of the markets — it wants me to deploy more capital.
In a bull market, I’d probably leg in small then manage the trade. Today, however, I sit and wait. If I’m not OK with missing lower % moves, I’ll never make it out of here alive. Neither will you.
For the next month I would encourage any traders to spend much more time mapping out high probability setups and less time reacting to the price. There is a chance you miss every single trade in the coming weeks bc your logic was not met. That’s part of the game. Step 1: Don’t lose money. Step 2: Make money.
The greatest traders know which market environments command the proper models. In these conditions, only take trades you have a very high probability of winning.