If you’re brand new to trading, then one of the things you may not be super familiar with is “strike rate”. In day trading, strike rate is an essential metric professional traders use to measure the frequency of wins and losses over a sample of trades in a trading strategy.

The term is often used interchangeably with win rate, and knowing the impact of strike rates on your trading are crucial for ensuring you’re trading a robust strategy that can profit over a series of trades. Let's find out what strike rate and trading is and why it matters.

What Is Strike Rate/Win Rate?

In order to be a proficient trader, you need to start by understanding the basics, so let's define what a strike rate is, why it’s important, and how it fits into a trading system that makes money.

Defining Strike Rate

Your strike rate is the percentage of trades that produce profits compared to the total number of trades you place. It's a very simple, yet powerful metric that provides us with an important piece of the puzzle.

The formula for calculating strike rate is as follows:
(Winning Trades / Total Trades) x 100

Essentially, you're figuring out what percentage of your trades are profitable compared to how many are not.

Strike Rate vs. Win Rate

Win rate and strike rate are the same thing and can be used interchangeably. However, they don't solely determine profitability on their own. If a trader doesn't engage in proper risk management techniques, even a high strike rate doesn't guarantee you are trading a profitable system.

For instance, a trader could have a 90% strike rate. It sounds good on the surface, they’re winning 9 out of every 10 trades, and losing only one, but they can still end up losing over the long term if their average winning trades profits are too small in comparison to their average losing trades loss. Therefore, trading a system that also has a healthy average risk-to-reward ratio on winning trades ensures long-term profitability.

Why Strike Rate Matters in Trading

The strike rate is very important in trading of all sorts, particularly in day trading, with the main reason being that it has a great impact on long term profitability.

Impact on Long-Term Profitability

In terms of your long term profitability, your strike rate combined with your risk-to-reward ratio are the two main determining factors of whether your trading system is going to make money or not. 

It's also extremely important to have a positive balance between gains and losses. You could have a very low strike rate of just 35%, but if the average profit of each trade is +3RR, (3x the size of the average loss), then you’ll technically be slightly profitable. 

If you can push your strike rate up to 50% with your average winning trade being +3RR over a sample size of say 20, 30, 50 trades, you’ll then have a winning system that makes money consistently. It’s that simple.

Psychological Benefits of a High Strike Rate Trading System

If you have a high strike rate, it also provides you with some obvious psychological advantages. It greatly reduces the amount of emotional stress you’ll likely experience because you won’t have to endure huge confidence shattering losing streaks.

When you see that over a series of 10-20 trades you’re winning half or more, you won’t hesitate to put the next trade on.

However, if your trading system has a low strike rate and you hit a long losing streak, it can lead to becoming highly emotional, impatient, frustrated, and can lead to revenge trading or make you so fearful of taking another loss that you’ll fail to take valid trades as they set up. This can further negatively impact your performance. 

Having a system that has a good strike rate and good average win per trade allows you to maintain a good trading psychology without having to worry about all of the aforementioned problems that crop up for traders trading a system with little to no edge.

How to Improve Your Strike Rate

Seeing as the strike rate is one of the essential pieces to overall profitability, figuring out a way to improve it is something that almost any trader can benefit from.

Find a Proven Strategy, Learn It, Backtest It, and Refine Your Execution

To improve your strike rate, start by ensuring your strategy has an actual edge. Finding a proven strategy that other traders are using to make money with is a great way to ensure you don’t waste your time learning a bunk strategy. 

Next, take your time to learn the strategy, then backtest in sim or forward test it in a demo account. Backtesting/forward testing in a demo environment allows you to identify both the strengths and weaknesses in your individual execution of a trading strategy without risking any money.

For instance, the strategy I teach in my Advisory Mentorship Program was an edge that I developed over years of trading. It's purposefully simple, so it’s hard to make mistakes. The line between what is a valid, or invalid trade setup is super clear, and not only have several of my students gotten funded through prop firms with it, but so have I.

Here are some pictures of recent payouts I’ve received from a prop firm called Alpha Futures:

Stick To Valid Trade Setups Only

A mistake a lot of new traders make is overfitting trade setups to the strategy, and thus taking invalid setups, or they deviate from the strategy altogether because they think they can pull money out of the market on a hunch in the moment. The other thing I’ve seen a lot is overtrading as a result of impatience or as a form of revenge trading. These obviously can lead to lower strike rates and eat your profits up really quickly if you’re not careful.

Proficiency in trading is about taking only quality trades, not a huge quantity of them. Narrow your focus and you'll find that you'll miss far fewer opportunities, and be ready to strike when the iron is hot (a valid trade sets up).

That’s it for this week!

-Brian