There are no 2:1 trades

There are no 2:1 trades.

If I were ever to come back into the markets in another life, it would definitely be as a YouTube trader. Oh, how sweet life would be as I would trade only the past, creating perfect 2:1, 3:1, even 5:1 setups while convincing everyone that I could be a millionaire by Friday by trading something called "support and resistance."

Alas, unfortunately, I've chosen to trade the future, and the future is nowhere near as easy or as kind to your account. There is, of course, no such thing as "support and resistance." There are simply just peaks and valleys on the chart left by past price action, and if the market is in a range-bound mood, then those points occasionally line up with a market turn. But woe to the trader who thinks that they are anything important if the market suddenly changes into continuity mode. Those points of "support and resistance" will fall faster than the Russian front line in a mechanized Ukrainian assault.

But the wiggles on a chart are something to discuss for another time. Today, I want to focus on the very pernicious belief that in trading, you should always trade with a 2:1 win ratio. This sounds very seductive. In most newbie traders' minds, they imagine that every second trade they take will make $2 for every $1 they lose. The reality is that most traders will probably lose $1 three, four, five, or even six times in a row before eking out a lonely $2 win.

I still remember in my youth how I tried to blindly follow the "discipline" of the 2:1 dogma to lose not six, not seven, but FIFTEEN TRADES in a ROW. Go ahead, give it a try; I am sure you can match my record, especially if you day trade the markets for tiny margins.

Markets simply don't hand out $2 bills for $1 worth of risk with any consistent frequency. Almost every strategy you backtest at a 2:1 ratio will come in at a 25% win rate or worse, unless it was perfectly optimized for a particular slice of time.

I've shown many times in the past that anyone on YouTube who claims they trade with a 2:1 win ratio and a 70% win rate is just lying their a** off. Otherwise, they'd be in possession of a money machine that would make them wealthier than Elon Musk.

The best that can be said about day trading the markets is that there are certain times of the day when a particular regime dominates trade, and even that is not a certain assumption. Take a look at my Bounce strategy (the purple tiles indicate losses, green ones indicate wins)...

Continuity dominates only during the market open periods when you have the greatest number of participants running for the same exit at the same time. And mind you, these are 1:1 trades for basically 10 basis points of the underlying, and 1:1 is as good odds as you will likely get if you want to squeeze out a positive expectancy on a day trading basis. Keep in mind that HFTs like Citadel and Virtu, which have far more firepower and brainpower than you, only win 52% to 54% of the time with a 1:1 ratio because, of course, unlike the YouTube gurus, they trade live and actually understand the real odds.

Which brings me to my last point of the day. In day trading, the order of importance is When, What, How. Know when your strategy has the greatest chance of success during the day, know what instrument will likely offer the smoothest expression of that behavior, and only worry about the entry criteria last. They are not unimportant. They are just the least important.

Figure out your own When What How framework. It will be a lot more productive than blindly chasing 2:1 trades