Main question to answer for myself: do I want a high Risk/Reward ratio or a high Win Rate?
My take is that consistency (high win rate) is what I need to target with at least 50 to 75% of the trade size and let 25% ride for as long as it can. That means lock profits as early as needed and let some small fraction of the size capitalize on larger moves.
Straight out the AllDayFaders Twitter account:
Lil secret.
The most ACCURATE trade setups (high win rate) must be entered a little “too late” and exited a little “too early”.
The most PROFITABLE trade setups (high reward to risk ratio) must be entered a little “too early” and exited a little “too late”
Why? To maximize accuracy (win rate), you must wait for confirmation. Confirmation means that you’re letting the smart money move the trade in your favor (or stop the momentum) BEFORE u commit size. This automatically means that u’ll have to enter a bit “late”. cant have both
To maximize profits (high reward) aka capture the majority of the move’s range, you have to get in BEFORE the move starts (when no one wants the stock). This automatically means that u must risk getting stopped out early by MMs or being wrong on ur thesis (since no confirmation)
This also applies to exiting trades (taking profits or stopping out). If u want a high winrate, u HAVE to exit the trade early. Waiting too long leads to the stock reversing & turning the unrealized win into a loss. But that also means that ur profits will be SMALL.
if u want a high reward (big profits), u’ll HAVE to exit the trade “late”. u’ll have to wait until the stock has confirmed that the move is officially done. But this also means that u’ll have a shitty winrate since there will be times where u’ll turn a decent winner into a loss.
Traders fail b/c they change their damn thesis midtrade. They enter high winrate setups too early & try to take profits on them too late, or they enter high reward setups too late & try to take profits on them too early. U cant have both. Make up ur mind hoe.