Hunting High and Low

Recently, a song called Hunting High and Low by Stratovarius got stuck in my head. I listened to the lyrics and immediately thought:

“This is almost like it’s about trading, isn’t it?” :)

Of course, it isn’t. But that’s how it usually works - when something fills your mind completely, you start seeing it everywhere around you.

And somehow it reminded me of market trends. That feeling of riding one strong wave when the market starts moving and we try to stay on it for as long as possible. In a way, we are hunting highs and lows.

The Trend Is Your Friend

Trend-following strategies attracted me from the very beginning. A large part of that was probably because this was exactly the direction I was guided toward when I first started working in trading.

And as they say:

The trend is your friend.

What’s interesting about trends, though, is that most tradable instruments spend most of their time not trending. Truly trending periods are actually much rarer than they may seem at first glance.

And yet those strategies attracted me the most.

I think the reason is that psychology plays an extremely important role in trading. The structure of a trading system should reflect who we are ourselves - our mindset, what feels natural to us, what we are comfortable identifying with.

Of course, this changes over time - and it should. As we evolve, our strategy usually needs to evolve with us as well, especially when we are still somewhere near the beginning of the journey.

A Strategy Must Fit the Personality

Over time I realized that trading is not only about finding the “best” strategy, achieving the highest win rate or finding the most precise entry.

What matters much more is:

whether the strategy fits our personality.

Psychology plays a huge role in trading. Possibly a bigger role than the strategy itself. Every person handles stress differently.

Some people psychologically struggle with:

• long losing streaks,
• low win rates,
• frequent stop-losses.

Others struggle more with:

• small profits,
• occasional large losses,
• or the feeling that after a long period of “success,” a sudden hard hit arrives.

And this is exactly where I realized that trend-following strategies with lower win rates suited me psychologically much better.

Why Lower Win Rates Worked Better for Me

At first glance, it sounds strange.

Many people naturally assume:

higher win rate = better strategy.

But the win rate itself says very little. What matters is:

• how much you make when you are right,
• and how much you lose when you are wrong.

Trend-following strategies often work in such a way that:

• many trades end with small losses,
• but occasionally one strong trend appears,
• and that single move pays for many previous losses.

And psychologically, this suited me better.

If you already understand that losing streaks are normal and stop-losses are part of the system. Then the strategy simply expects them in advance.

There is less of that illusion of “invincibility” that often appears when you are right most of the time - something that frequently happens in systems with small profits and much larger potential losses.

The Trap of a High Win Rate

With high win-rate strategies, I often felt a different psychological trap.

When a person wins frequently, very quickly they start feeling:

• “I’ve figured it out,”
• “I understand the market now,”
• “I know what I’m doing,”
• and even that they can start risking more.

But very often, it is not skill.

Often it is simply a phase, a market condition or a type of market that currently matches the strategy. And ironically, this is exactly when a trader is often the most vulnerable.

With high win-rate systems, we frequently collect many small profits, but eventually a larger loss arrives and wipes out a large part of previous gains.

Psychologically, this suited me less. Of course, I still trade these kinds of strategies too - but I allocate a smaller part of the account to them (more on that another time).

A Simple Example

So how can a strategy with a lower win rate survive in the long run?

Let’s imagine a simple example. We make ten trades.

• On every losing trade, we lose €100.
• On every winning trade, we make €300.

Out of those ten trades four are winners and six are losers.

At first glance, it looks bad, because we have only a 40 % win rate - more losses than wins.

But mathematically, it looks different:

And this is exactly what the risk-reward ratio is about. You do not need to be right more often than the market. Your profits simply need to be sufficiently larger than your losses.

So besides the win rate, we suddenly discover another extremely important parameter of a trading strategy.

Trading Reveals Who We Are

Over time we begin to understand that trading is not only about charts and strategies.

It is also about:

• what we can psychologically handle,
• how we react to losses,
• how we react to success,
• and what kind of uncertainty we can tolerate long term.

Some people will feel more comfortable collecting many small wins even at the cost of occasional larger losses.

Others will prefer accepting many small losses because they know that eventually a large move may appear and pay for everything.

Neither approach is necessarily right or wrong. What matters is:

which one fits our psychology better.

To Close

For me personally, this is one of the most important things in trading.

Not trying to find the “perfect” strategy, but rather finding a strategy we can psychologically sustain over the long term.

Because sooner or later, the market will show us:

• who we are,
• what we cannot handle,
• where our weaknesses are,
• and where our strengths are.

And if we want to survive in the markets long term, we need to discover that as soon as possible.

That is what trading is really about.

Not only about making money, but also about learning to understand ourselves better.