Many years back, when I was starting out in investment. My friend shared with me the concept of trading edge.
The default of any entry position into stocks is 50:50. Up or down.
What sets 1 investor/trader Apart is the % of success.
To do so, investors/traders focus on ways to increase their probability. Be it fundamental analysis, technical analysis, charts, Marco economics. Why the focus on win rate over high profits? That's cos investors/traders want a substainable way of making consistent profits.
Hitting 1 good trade and making profits of 1million like the crypto and meme millionaire maybe great, however, can they repeat it? The issue is cos of human nature. Money that comes easily, parts easily. That's the reason why many lottery winners end up even worse off than before they won the lotttery.
If the focus is on high profits, taken to extreme, why not just "invest" in lottery? Extremely low probability, using very little capital for extremely high profits.
High win rate allows for investor/trader to make consistent returns which may eventually replace their main source of income.
Currently to me, buying stocks is very difficult to achieve high win rates, but having holding power and investing in fundamentally stong companies definitely helps. Dividend stocks help also, but likely it isn't being reflected in the win rate. In fact, my win rate is severely lowered due to my stock portfolio.
But I do not mind if, as I I continue to collect dividends from my holdings.
What really elevates my win rate is option selling. The consistency is there when enter via delta. Delta 15, automatically translates to 85% prob of success. There's 15% chance of movement against the position, which could be further mitigated by rolling of positions.
This is something that stocks and cryto can't achieve as they can only transact at current levels, instead of using strike prices as a base like options.
Nevertheless, there's always 2 sides to a coin. With high win rate, profits will be lowered to compensate for the stability.
At the end of day, it's really dependent on the individual on what they want to achieve.
Hit 1 big lump sum and exit the markets?
Replace income Or supplement income?
The priorities could vastly differ.
Comments
Great article, would you like to share it?