Glossary · Risk & money management
Win rate
The percentage of trades that close in profit. On its own it says little. A 40% win rate can be very profitable with large winners, and an 80% win rate can lose money.
In practice
Two strategies: A wins 70% of the time but its average loss is three times its average win; B wins 40% with wins twice the size of losses. B makes money and A loses it.
Choosing a signal provider by win rate alone. Without average win and average loss, the number tells you nothing about profitability.
Related terms
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The potential loss compared with the potential gain. Risking 30…
Expectancy
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Testing a strategy on historical data to see how it would have…
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A rare, unpredictable event with extreme market impact, such as…
Correlation
A measure from −1 to +1 of how closely two pairs move together.…