Nine wins, one loss, and a red month

Several do, and they share one shape: many small wins and a rare large loss. A high win rate is easy to build. You just have to accept that the losing trade will be much bigger than the winning one.

Selling options far out of the money is the classic case. Price rarely travels that far before expiry, so most trades keep the premium. When it does travel that far, the loss can be many times the premium collected.

Very wide stops do the same thing to directional trades. Give price enough room and it usually comes back, so most trades close green. The ones that don't come back close at the far stop.

Adding to losers is the third version. Averaging down turns many red trades into small winners on the bounce. On the day there is no bounce, the position is several times its normal size.

At a 90 percent win rate, your average loser can reach nine times your average winner. Past that, you lose money. Nine wins of 1 unit pay for one loss of 9 units. Anything bigger and the strategy loses, however often it wins.

Take a credit spread 5 dollars wide that collects 0.50. You make 50 dollars when it expires worthless and lose up to 450 when it doesn't. The breakeven win rate is 450 divided by 500, which is exactly 90 percent. That's before fees.

Now drop the win rate to 85 percent. Expectancy is 0.85 times 50, minus 0.15 times 450. That's 42.50 minus 67.50, a loss of 25 dollars per trade. A five point slip in win rate turned a flat strategy into a losing one.

The rare loss is rare, so a short track record often doesn't contain one. That's what makes these strategies look so good in screenshots.

Here is the arithmetic. Say the big loss comes once every 50 trades on average. The chance of a 40 trade record with no big loss is 0.98 to the power of 40. That works out to about 45 percent. Nearly half of all 40 trade samples would show a clean record.

The same goes for your own trading. A month of steady small wins can feel like proof. It may only mean the bad day hasn't arrived yet.

A high win rate next to deep drawdowns is the mark of a missing stop. The wins are genuine. The exits on the losing side are missing.

Ignore the win rate at first. Look for the size of the worst outcomes, because that's where these strategies keep their cost.

Compare the largest single loss with the average winner. At a 90 percent win rate, a ratio of 9 or more puts the record at breakeven. Then compare max drawdown with a typical month's profit. If one drawdown wipes out several months, the tail is real.

Check hold times next. Losers held much longer than winners point to a stop that moved or never existed. Check size too. If position size rises after losses, someone is adding to get back to even.

Ask anyone selling a 90 percent strategy for the worst trade and the worst month. If they can't or won't show you, assume the tail is there.

Pull your last 100 closed trades from your journal or a broker export. Then run these checks in order.