- The majority of traders spend enormous amounts of time and money searching for ways to increase their accuracy, failing to realize that they could dramatically increase their bottom line by focusing the same amount of energy on increasing their average risk-reward ratio.
- A trader must be willing to accept the more volatile equity curves that a low accuracy/high risk reward trading model delivers, but the added profitability at the end of each quarter should more than offset any mental stress.
- As is often the case in this perverse business, the biggest edges and most dramatic profitability come from the low accuracy/high risk-to-reward trading strategies.
- Develop edges built around the market open, around the market close, around seasonal tendencies, and the relationship of stocks in similar sectors.
- Minimum Profit Objective (i.e. minimum reward-to-risk ratio) = (100 – Win Rate) / (Win Rate). The statistical break even win rate for a 2:1 trading strategy lies near 34%.
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