Triangle of Trading

There are three objectives that you need to apply to your trading strategy, which are win rate, average profit percentage, and trade count. Take a look at the image below.

You need to pick at which point do you want to design your strategy as. Let’s me describe four possible scenarios that you can use

• At point A, the strategy is designed to have medium win rate and medium average profit % while having low trade count
• At point B, the strategy is designed to have medium win rate and medium trade count while having low average profit %
• At point C, the strategy is designed to have medium trade count and medium average profit % while having low win rate
• At the center point of the triangle, the strategy is designed to have below medium trade count, below medium average profit % and below medium win rate

As you can notice from the 4 scenarios above, there are no category that can achieve high value. It’s impossible to achieve more than one high value. You can achieve a high value on one of the category if you are willing to sacrifice the two other categories.

• If you want the highest win rate, your strategy need to have lowest average profit % and lowest trade count.
• If you want the highest trade count, your strategy need to have lowest average profit % and lowest win rate.
• If you want the highest average profit %, your strategy need to have lowest win rate and lowest trade count.

Of course you don’t have to go to the extreme end. You can choose any point in the area inside the triangle, for example if you are okay with 80% win rate, then you can move the point slightly lower which means you can get slightly average profit % and/or trade count.

It’s important to know which point you want, because it will be reflected in your strategy. You will have easier journey in strategy development if you don’t try to do the impossible, which is trying to create the perfect strategy that have high win rate, high average profit % and high trade count.