The Impossible Triangle in Trading: You Can't Have It All
Many newcomers to the market first seek the perfect strategy—high win rate, large profit-to-loss ratio, frequent trading, and even making trades every day, with a curve that always goes up and stable profits. It sounds beautiful, but in reality, a perfect strategy does not exist.
There is an unchanging fact in the market: the impossible triangle!!!
① High Win Rate, Low Profit-to-Loss Ratio
The most typical strategy is the Martingale strategy.
Frequent trades, the account is profitable most of the time, and the performance looks stable.
But its core is not to get rich quickly, but to earn small and stable profits through a high win rate, while accepting occasional large drawdowns.
The advantage is low psychological pressure, suitable for long-term execution; the disadvantage is that stop losses can be quite obvious.
② High Profit-to-Loss Ratio, Low Win Rate
This is a typical trend-following strategy. Small and frequent stop losses, with a win rate of only about 30%, but once a major trend is caught, the profit-to-loss ratio can rapidly expand to 3:1, 5:1, or even higher.
The mathematical expectation is completely valid, but it requires a very high mental fortitude from the executor.
Most people, after frequent stop losses, will doubt the system and abandon the strategy.
③ High Frequency, High Win Rate, High Profit-to-Loss Ratio
The “Holy Grail” in many people's minds.
Able to trade daily, frequently make money, and each profit is considerable. However, in reality, such a combination almost does not exist.
It may be effective in the short term, but once the market environment changes, the drawdown can be very deep. This “perfect” strategy seems ideal but is difficult to sustain.
④ The choice is simple, but the cost is high.
High win rates and high frequency will inevitably sacrifice the profit-to-loss ratio; a high profit-to-loss ratio means accepting low win rates and low frequency.
Having all three may work in the short term, but in the long run, it is destined to backfire from the market.
The problem has never been whether there is a perfect strategy, but which cost you can accept.
Can you endure occasional large losses? Can you accept frequent small losses? Are you willing to expend energy and pay commissions for high-frequency trading?
The hallmark of maturity is not finding the Holy Grail, but recognizing the impossible triangle and choosing a path that suits you for the long term!!
