Look at the equity curve of almost any successful discretionary trader over a year and you will see a pattern that surprises newcomers. Most of the trades are small: small wins, small losses, scratches. The curve is flat for weeks at a time. Then a handful of trades, sometimes fewer than ten in a year, account for most of the profit. Those trades are not luck in the sense of being random. They are the trend days and momentum runs that the trader was positioned for and held. The rest of the trading exists, in a sense, to keep the trader in the game and in position for those days.
The arithmetic
Expectancy is the average amount a strategy makes per trade, measured in units of risk: the win rate times the average win, minus the loss rate times the average loss. A strategy that wins 60% of the time with average wins of 1R and average losses of 1R makes 0.2R per trade. A strategy that wins only 35% of the time, with average losses of 1R but average wins of 3R, makes 0.4R per trade, twice as much, while being wrong almost two times out of three.
- 60% wins × 1R − 40% losses × 1R = +0.20R per trade.
- 35% wins × 3R − 65% losses × 1R = +0.40R per trade.
- 30% wins × 4R − 70% losses × 1R = +0.50R per trade.
Momentum and trend trading usually lives in the lower rows of that list. Win rates are modest, because many breakouts fail and many trends stop early. The profitability comes from the size of the winners, which in turn depends entirely on the trader's willingness to hold them. A momentum trader who cuts winners at 1R, while keeping a 35% win rate, has turned a good strategy into a losing one.
Living with a low win rate
The hard part is psychological. A 35% win rate means long losing streaks are normal: five or six losses in a row will happen several times a year. A trader who does not expect this will abandon the method in the middle of a streak, often just before the trend day that would have paid for the month. Knowing the expected streak length for your win rate, and sizing small enough to absorb it comfortably, is what makes it possible to stay with an asymmetric strategy long enough for the arithmetic to work.
Cutting the left tail
Asymmetry has two halves. Letting winners run is one. The other is keeping losses at or below 1R without exception. A single trade allowed to run to a 4R loss cancels a 4R winner, and it is usually the trade that was held in hope rather than by rule. The traders whose results show a few large winners and many small losses are the ones who are strict about both ends: the stop is never widened, and the runner is never cut without a reason.