In general, which is a better use of an aspiring trader's time and effort: trying to win more from profitable trades, or trying to enter fewer losing trades?

mariafp 

In general, which is a better use of an aspiring trader's time and effort: trying to win more from profitable trades, or trying to enter fewer losing trades?

It depends on your personal stats. This is why it's critical to track your own trades and see where the most room for improvement lies.

If I had to generalize it though, I'd say that the path to "fewer losing trades" is one to tread cautiously on. Are the losing trades losers because you took them out of boredom, with no edge, revenge trades? These are always things to try to root out. But, a legitimate trade, with edge, which is a loser is just part of the game.

If you are already being selective, the question becomes not how to avoid losing, but possibly optimizing a bit on the size of the loss. For example, if you find that your winning trades go against you by some amount X, but that your risk / stop loss is X*5, then you can possibly save some on your losses by using a smaller stop. Also, if you tend to enter a trade, get stopped out, and then it turns around and works, then perhaps you just need a little wider stop, or perhaps you should wait a little longer sometimes.

Being selective is important, but can easily turn into fear of entering a trade. Not being selective enough means unnecessary losses which has a tendency to cause you to cut your winners short in order to get back what you lost. That's why this is such a tough game The solution is to know your own self and method of trading, and seek to iterate for improvement on it.

If by aspiring trader you mean not consistently profitable, I think the first priority is to not lose so much. If a trader is developing or haven't yet figured out their edge, there probably will be a lot of losses at the beginning. Like the first year or so. This is when the learning curve is steepest. Eventually you start losing less and start winning a little bit, then a little bit more, then a little bit more, and so on. Ideally this is how it might go. Some folks are still in the wilderness after five years.

What you should focus on is just developing your edge. Whatever market that is, whatever time frame you trade, whatever your risk management, become a master in your edge and then exploit that each trade. The result, whether it's fewer losses or more wins or however you want to look at it (it may not matter) will follow.

mariafp 

In general, which is a better use of an aspiring trader's time and effort: trying to win more from profitable trades, or trying to enter fewer losing trades?

Hey @mariafp , great question and the right sort of question to ask. Well done.
Expected Value is important math tool for trading.
Formula and Calculation of Expected Value (EV)



The best Longer term traders eg swing have a win rate 70-75% and risk to reward 2,3, 4 etc , some have lower win rates eg 30% but reward to risk are factors of 6,7,8,9+
Some scalpers have high 70-92% win rates but low returns relative to risk...the number of trades ie many chews their accounts up in fees if they don't have a true edge and one bad error is enough to hurt the account to the point of not recovering if there exists no true edge


I realize I haven't really answered your question. I personally believe trading over 1 day to several days with high as possible win rate and with reward to risk up to 4,5,6,7,8 times plus is best...there are some boards where validated traders can compete and you will see such indivs actually displaying these sort of results...however this may not suit your personality...mine is to build multiple tools to see better scalping opps then automate...why ? I'm not a good trader manually..actually quite bad ...I also believe that aggregating data leads to less "ëdges" but it is a much harder route ...
Some believe the market is random, and the type of betting method can put the edge in ones favour to make money... finding your own approach is important and that can take some time trying different approaches etc. You having a math/Stats background certainly helps as rigor in these areas leads to one moving more quickly I personally believe.


thanks and good luck there

Here is a chart you might find useful. Win Percentage is on the X axis, and Reward/Risk ins on the Y axis.

The red curve is the breakeven point.

Anything to the left of it - you lose money.

Anything to the right of it - you make money.

The further away you are from the red line, the better off you are.

The blue dots represent some actual profitable algo strategy results. These results are over backtest and live test periods of 10+ years.


Notice there are no "unicorns" in this group - strategies in the upper right corner, with high reward/risk and high win percentage.


Note 2: These results are NET - after slippage and commissions.

Pariah Carey 

If by aspiring trader you mean not consistently profitable, I think the first priority is to not lose so much.

I meant myself, really: I'm certainly not consistently profitable.

I see that this makes good sense.

Thank you all for helpful, interesting responses!

mariafp 

In general, which is a better use of an aspiring trader's time and effort: trying to win more from profitable trades, or trying to enter fewer losing trades?

I think you should approach it with this mindset: Allow your winners to run, resulting in longer time in market in a winning position and conversely, cut your losses short, resulting in shorter time in market in a losing position. Also, you don't have a crystal ball, therefore you have to manage a trade and see how it's developing and if it's still in line with your thesis.