Strategy and performance
Win rate
The proportion of trades that finish profitable. On its own it says nothing useful - a 90% win rate with one outsized loss and a 35% win rate with large winners can produce the same result.
GFN’s figure
Win rate matters less than sequence against a fixed floor: a 8% GFN 2 Step drawdown absorbs 16 consecutive losses at 0.5% risk, however good the long-run win rate is.
In detail
Win rate,explained
Win rate only becomes meaningful paired with the average win and average loss. Quoted alone it is the single most misleading statistic in trading, and the one most often used in marketing.
It also drifts with the exit rules rather than the entry. Taking partial profits earlier raises the win rate and lowers the average win without changing the strategy's edge at all.
Related
Terms thatcome with it
Most rules only make sense next to the ones they interact with. These are the entries this one depends on.
Expectancy
The average result of a trade over a large sample, combining win rate and average win and loss. A positive expectancy is necessary for a strategy to work and not sufficient for it to pass an evaluation.
Risk-reward ratio
The size of a trade's target relative to its stop, expressed as a ratio. A 2:1 trade risks one unit to make two, which sets the win rate the strategy needs in order to be profitable.
Profit factor
Gross profit divided by gross loss across a sample of trades. A profit factor above 1 means the strategy made money; below 1 means it lost, whatever the win rate suggests.
Maximum consecutive losses
The longest unbroken run of losing trades in a sample. Multiplied by risk per trade it gives the drawdown a strategy has historically produced, which is the figure a fixed floor has to absorb.
R-multiple
A trade's result expressed in units of its initial risk. Risking $200 and making $600 is +3R; hitting the stop is -1R. It makes results comparable across account sizes and position sizes.
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