In our quest for helping traders improve their performance, we often get asked how to achieve a higher winrate and stop losing trades. We feel that this is a very important question because it looks at the wrong aspects of profitable trading, yet it is asked by nearly every trader a one point.

The best traders don’t have the highest winrates. The best traders keep losses small and let winners run. Whereas the amateurs lose money even with a high winrate because they let their losses get out of hand.

Winrate lacks context

Looking at winrate by itself does not provide any meaningful information. Let’s say you have a winrate of 90% but if you let just one losing trade get out of hand, while you always cut the winners short, you will end up losing money.

What you should focus on instead

1. The size of your winners and losers

First of all, you should pay more attention to the relationship between the size of your winners and the losers.

Look for big differences or major outliers. Here are a few things in your Edgewonk trading journal which can help you with this.

The Home Tab

In your Edgewonk Home Tab you see the comparison between the average winner and the average loser. In the journal below you can see that the average loser is larger than the average winner. This is usually not a good sign. It does not automatically mean that the trading strategy is bad or that the trader is doing something wrong, but it shows that the trader has probably some room for improvement which can be a good thing.

Holding Time

The Holding Time sheet provides a quick and easily interpretable overview of your trading performance. Most importantly, you should look for big outliers and large clusters.

In the journal below you can see that the trader had a few large losses which also all had a very long holding time. It looks like the trader tried to hold on to losses for too long, hoping price would turn around.

At the same time, his winners are mostly clustered at a very low holding time. Maybe the trader should look into holding his winning trades longer and cutting losses early. The Updraw and Drawdown are statistics in Edgewonk he should consult now.

The Traffic Lights

The Traffic Lights in Edgewonk are unique and they immediately show you whether the size of your losses is too large or if the winners are too small for your overall performance data.

Below you can see that the PCR (the traffic lights for his realized trades) is mostly red which means that he cut his losses too late and his winners too early.

The Trade Analytics

The Trade Analytics provide a very detailed breakdown of your trading performance. For our purposes, we suggest that you set the Ordering criteria on the left to Trade Outcome which will give you a comparison between winning and losing trades.

The table then provides a lot of meaningful data such as the size of your trade – do you size positions correctly or does a larger losing size show that you become emotional? The R-Multiple is an outcome metric and it shows how large your winners and losers are in comparison. And the RRR Planned shows how the initial outlook of your trade was. All those metrics can be very helpful, especially if you see major differences and huge outliers.

2. Your process

Edgewonk comes with a variety of features and metrics that allow you to analyze your process, your trading behavior and your overall discipline.

The Tiltmeter

The Tiltmeter at the top shows you how well you have respected your rules and whether you have repeatedly broken your rules.

Below we can see that although the trader has a high overall score (269), his recent trading performance shows negative values which means that he made bad trading decisions and broke his rules. This should serve as a warning and a heads up for the trader.

Trade Management

The Trade Management graphs if you are leaving money on the table or if you are mismanaging trades by analyzing how trades are executed and exited.

Below we can see that the green graph (the performance without management) is way above the red graph (the current performance) which means that the trader is cutting winners too early and letting losses run too long. This trader could, potentially, improve his performance by just not interfering with his trades. A passive management approach is often better for inexperienced or emotional traders and the Trade Management graph shows this nicely.

3. The variance

Finally, we can consult the Simulator in Edgewonk to get a feeling for variance. Variance means how much volatility you are likely to see in your trading performance. For example, if your losers are relatively large on average, compared to your winners, the variance will be high. But if your winners are larger than losers, the variance is usually lower.

Having a low variance is usually easier because it is less stressful and traders are not as likely to suffer from emotional trading problems.

Below you see 3 different simulations of an account development with Edgewonk. All parameters were kept constant and the only thing that we changed was the size of the average losing trade. You can see that the variance differs significantly and it shows that keeping losses small and winners large is the way to go.

So now it is up to you. Use your Edgewonk journal to analyze your trading, understand your performance much better and use those insights to improve your performance.

We have started a new review service and if you are an Edgewonk user, you can send us your journal and we review it: Edgewonk’s review service