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Can you make over 50% per year with < 40% winners and 1.3 profit factor?


Can you make over 50% per year with < 40% winners and 1.3 profit factor?

In other words can ya make a lot of money even if you screw up a lot?


In fact many quant system that trade have a win rate under 40% But the lower the win% the more the system needs a big home run now and then. These tend to be counter trend strategies with low win rates and good profit factors.
By adding in a low profit factor your goal is harder. There is no fee lunch… high return = high risk. Many Quants fail to see the risk, but it is there. Search Long Term Capital Mng. or Read when Genius Failed. Before pursuing high risk you might consider where the market is at right now… try this and before you invest in a strategy that did not trade in the 2008 downturn, ask yourself how it builds in safety.


Found this post although a bit late. I find this post interesting. I do not know how many people base their decisions based purely on win ratio. Its a sure recipee for disaster if you base your decision only on win ratio. In fact I would be very skeptical about systems that has win ratio 80% or above. Anything above 90% is a candidate of martingale. You should examine individual trades carefully in such cases. A simple system that I describe below would have win ratio > 90% but I can guarentee it will bust soon. Strategy goes like - enter the market every day at random- take profit 1 tick, stop loss 100 tick. Your win ratio will in the high 90’s, but system will fail for sure in the future because your 1 loss would give back all your profits and more

I trade couple of profitable mechanical strategies personally that has win ratio ~ 30% but with annual return/max drawdown > 3. (Not talking about my strategies published here on C2). They are trend following strategies - which makes sense because market trends only 20%-30% of time may be even less. Another factor that determines win ratio is how tight your stop losses are. If you have a tight stop-loss, you make numerous tiny losses before catching the big move that covers all your losses easily and brings much more.

Psychologically they are difficult to trade manually, its best to trade them automated.

Another system collapse

Yes you can, but to achieve that CAGR with that profit factor will likely require a fairly high trade frequency. With a 1.3 profit factor, the money doesn’t come so easily on individual trades, so you would need to turn over your capital quite a bit to make >50% per year. Definitely within the realm of possibility though.


Yes, if you are hedging your main positions, you can.


I would think so :slight_smile: Let me know what you guys think of my strategy. AI Algorithms 13