High Win-Rate Or High Profitability?

Which do you prefer – a strategy which gives you a high win-rate or one which gives you higher profitability?

The answer, of course, is “it depends”.

It really depends on what kind of win-rate we’re talking about and what kind of profitability we’re talking about.

Personally, I would rather a high win-rate. Definitely one that is higher than 50%.

In fact, I ideally would want something that is at least 60% or higher.

I would rather a strategy which gives say a 60% win-rate and an overall 30% gain on account after 100 trades, as compared to a strategy which gives a 40% win-rate and an overall 50% gain on account after 100 trades.

It’s just me.

I don’t like experiencing more losing trades than winning trades.

It’s a mental and emotional thing.

I suppose some traders can accept a less-than-50% win-rate.

But I know myself pretty well. I don’t like to lose more than I win, even if the overall profitability may be higher for a lower win-rate.

There are two main reasons for this:

  1. More losing trades leads to emotional vulnerability, and you need to have a really strong mental game to be able to withstand a 40% win-rate.
  2. Emotional vulnerability may lead to revenge trading (i.e. taking ill-advised trades which leads to even more losses).

What’s Your Exit Strategy?

The are tons of YouTube videos about the best entry signals for day trading.

However, I feel there is a relative lack of discussion with regards to exit signals.

Which is ironic, because someone once said that the exit strategy is far more important than the entry strategy, and I think that is absolutely true.

You don’t make a single cent from an entry strategy. The exit strategy is where your money is made.

Every exit strategy has its own pros and cons.

Let me try to summarize:


Description: Set a fixed stop-loss (e.g. 1x ATR) and take-profit target (e.g. 2x ATR) and don’t do anything else.


  • Easy to manage. In fact, no management required at all.
  • Won’t get stopped-out prematurely (as compared to moving up your stop-loss midway through the trade).


  • Potentially frustrating if price comes very close to hitting your profit-target but then it goes all the way down and you end up losing the trade instead.
  • Determining the optimum take-profit target is tricky. Is it 1.5x? Or 2x? Or 2.5x? A lot of backtesting is required to determine this.


Description: There are numerous indicators which can be used as an exit indicator, such as moving average lines, MACD, Parabolic SAR, Heikin Ashi bars, SSL Hybrid, Aroon, etc.


  • Straightforward. No ambiguity.
  • Occasionally you may catch really huge moves.


  • In my experience, you usually leave significant profits on the table, which can be frustrating. For example, your trade may have gone to 4x profit, but the exit indicator only gives the signal when it comes back down to 2x profit. Also, if the move is a small one, you may actually end up with no profit or even a small loss. Some people may not be able to take this.


Description: This method means you don’t set a profit-target at all. You just let the trailing stop-loss trail price all the way until it comes back down and triggers the trailing stop-loss.


  • Easy to implement. No management required. Just let the trailing stop-loss do all the work for you.
  • You may catch really big moves.


  • Determining the optimum trailing stop-loss value is a tricky problem. Too big, and you may end up with no profits if the move is a small one. Too small, and the trailing stop-loss may get triggered easily.
  • Similarly with using exit indicators, you may end up with no profit or even a small loss if the move is a small one.


Description: Take off partial profits in tiers when price reaches specific checkpoints, e.g. cash out 25% when it hits 1x profit, cash out 25% when it hits 1.5x profit, and cash out all the remainder when it hits 2x profit.


  • You are wisely putting some money in your pocket as your trade becomes more and more profitable.
  • Psychologically comforting. You know that even if the trade suddenly goes south, you already have some profits safely cashed out. You will be more willing to let the trade run until it hits your desired take-profit target.


  • Tedious to manage, especially if you have multiple trades going on simultaneously.
  • You will collect less profits as compared to if you had waited till the final take-profit target to cash out 100%. For example, if you had a profit-target of 2x, you will collect more profits by cashing out 100% of your position at 2x, as compared to taking partial profits along the way.

Apart from the 4 strategies above, you could even do a hybrid strategy where you take partial profits in tiers, and then let the remainder trail with either an exit indicator or a trailing stop-loss.

I’ve spent countless hours pondering over what the best exit strategy for a trade is.

And the conclusion I’ve reached is that there is no one perfect exit strategy.

It depends on factors such as your personality, the style of trading you prefer, your risk appetite, the volatility and nature of the instrument you trade, etc.

If you’re the kind that likes to make your profits slowly, surely and steadily, then maybe Exit Strategy 4 might be best suited for you.

Personally, I don’t really like Exit Strategy 2 and 3 because I just don’t like seeing that I’ve only made 1x profit on a trade that had gone as high as 3x at one point. It just doesn’t sit well with me.

As such, at this point in my trading, and after trying out so many different types of exit strategies, I’m leaning towards Exit Strategy 1 (“Set and Forget”) because despite its simplicity, I actually find it’s one of the most suitable methods for me.

But of course, before you decide to adopt any kind of exit strategy, make sure you do a lot of backtesting first.

Don’t Average Down

One of the things I have learnt recently is to never average down.

It may work for others, but I know it will not work for my own style of day trading.

I’ve averaged down in the past thinking I could make even more when the price eventually moves back in my favour, but it almost always ends with big losses, leading me to get even more emotional and sometimes even revenge trading.

Very bad. Very very bad.

I trade based on short-term trend, and it’s quite apparent after 1 or 2 candles whether my trade is going to pan out or not.

So therefore, nowadays if it looks to me like the trade isn’t going to pan out, I’m just happy to get out at my stop-loss and move on to the next trade.

I may decide to average up a little if the trend is moving well.

But average down? Nope, never again.

Choppy Waters

US stocks have been choppy this year, to say the least.

Maybe “calamitous” might be a more appropriate word, assuming you are long on stocks this year.

The S&P 500 index is now down 11.3% from its record closing high on Jan 3.

This is not a good time to be holding on to stocks, and if you are holding the bag right now, I wish you luck.

I’m not saying stocks won’t rebound, but I’m saying holding the bag can horrible for one’s state of mind.

This is the reason why I stopped swing trading. I just can’t stomach overnight risk. It’s really not my kind of thing.

I have experienced it enough times to know it for a fact.

I’ve had many trades in the past where things just went south after a few days or weeks, and I lost big time from those trades. Not a good feeling.

Been there, done that, never doing that again.

And that is why I personally feel that day trading suits my mental health better, because I have a system whereby my maximum risk per day is always fixed, regardless of the nature of the market.

I trade calls and puts, so it doesn’t matter to me whether the market is going up or down – I try to capitalise on green or red trends that fit my strategy criteria.

Once again, I’m not saying day trading is the best way to trade. It is definitely possible to practise good risk management in any form of trading, whether you are holding for days or even for months (something which I failed to do in the past).

I’m just saying the nature of day trading suits me best.

You’ll have to experiment for yourself, maybe take a few hits along the way, and eventually find what style suits you best and go with it.

My Favourite Timeframe

The timeframe I use is the 5 minute timeframe.

I’ve tried the 1 minute, but I found it to be too short. It just goes by too fast and there is too much noise. Plus, the earnings per trade on the 1 minute were too low with respect to the commissions that I was being charged.

The 3 minute is also too short for me.

Therefore, I like to use the 5 minute as I feel it is just right. Not too long (I can’t sit through 15 minute candles at a time), and not too short such that everything just happens too quickly.

I’m very happy with the 5 minute timeframe.