Kristjan Kullamägi Is A Loser
Meet Kristjan Kullamägi
I’ve touched on this subject before, but today’s blog post is going to address the popular misconceptions around win rate and profit.
Today while cooking the best butter chicken recipe I’ve ever tried (and watching my crypto profits soar – it’s getting pretty crazy and certainly a good time to be taking some profits if you’re a hodler sitting on those juicy 10x+ gains!), I put on the latest episode #212 of Chat With Traders.
In this (yet another fantastic) episode, Aaron interviews Kristjan Kullamägi – an 8-figure trader from Sweden who has been successfully navigating the U.S. financial markets since 2013, after 2 years of initially blowing 3 or 4 accounts and struggling desperately.
Kristjan is a genuine top-dog trader, the kind of trader whom books are written about.
But contrary to many beginner trader’s expectations – he is a loser. A frequent loser.
Kristjan Is A Loser…
And That Makes Him A Winner
Kristjan’s win rate last year was 35%, and the year before that 25%.
Another way of wording that is he loses around 65%-75% of his trades.
“My win rate last year, and I had insane returns last year, was only about 35%. And the year before, in 2019, it was 25%. So yeah… you have to get used to getting stopped out a lot. Many times the same day, and many times within a few minutes. That’s the name of the game. That’s how it is.”Kristjan Kullamägi (@39:00 minutes)
And yet even with a win rate so low, he’s managed to work his way up to beating 99.99% of successful lone-wolf solo traders.
Without a hedge fund to back him, or proprietary trading funds, he has gone from a mall-cop security guard and university dropout blowing $5k USD accounts in the beginning to managing tens of millions of dollars worth of his own equity – to the point where he is now forced to trade large-cap stocks due to liquidity requirements for his sheer position size and aggressive style.
“I mostly trade large-caps nowadays, but just a few years ago when my accounts were much smaller I traded a lot of mid-caps and small-caps too. I’m just forced to trade the large-caps nowadays because they’re the most liquid.”Kristjan Kullamägi (@25:00 minutes)
Good problem to have, no?
Kristjan loses more money on his average losing trade than most retail traders make in their entire career of trading!
He’s the real Lone Wolf of Wall Street.
Swing Trading vs. Day Trading
These days Kristjan is a swing-trader who dabbles with position-trading from time to time.
For those who don’t know, swing trading is typically carried out over days to weeks and usually depends on structure-based trading or trend-continuation opportunities, while position trading is typically carried out over months to years and is more like a trend-following or investing approach.
But he didn’t start out that way.
In the beginning he was a day-trader, frequently entering and exiting trades on an intraday basis – which requires a fairly high win rate to be successful at given the fact that most intraday movements are subdued by the noise of the markets, and the fact that day-traders require extremely large position sizes (and/or leverage) to turn a profit based on the micro-movements of a market.
These enormous position sizes can result in impressive gains, but like a double-edged sword, they can also result in devastating losses if one is not quick to exit a losing trade.
But now, around 10 years after placing his first trade – Kristjan has converted to swing-trading as his primary mode of attack.
He realized through extensive study of historical price action that the biggest moves, and therefore the biggest profits, were made by holding positions over the long-term – not necessarily by scalping the micromovements of intraday price action.
However, that doesn’t mean that swing trading is “better” than day trading.
It all comes down to preference and psychological strengths vs weaknesses – for some traders they have an attitude and mindset and talent that is far better suited to fast-paced in-and-out trading, while other traders are better suited to slow-and-steady strategies that shoot for home run trades instead of frequent winners.
My point is not that swing trading is better than day trading, but that there are multiple ways to achieve success in trading – and it’s important that you discover what works best for you so that you can perform to your best abilities in an environment where your natural talents can thrive.
Kristjan has proved this fact throughout his career as a trader. He made his first million dollars in trading profits as an intraday trader.
But – according to Kristjan’s own words – he is a lazy trader. He prefers to make money while doing less work, which is what initially attracted him to swing trading as he became more experienced as a day trader.
He realized that he could make the same amount of money swing trading higher timeframes as he did micromanaging day trades in front of his screen from open to close which he eventually got tired of.
Personally I’d call that efficient trading, not being lazy – but I can relate.
One of the main reasons I’ve spent the past 3 years learning Pine Script is to automate parts of my trading process to reduce my required screen-time purely because I’m
lazy an efficient trader.
Kristjan’s Breakout Strategy
Although Kristjan now trades higher timeframes and captures slower moves, his approach to swing trading is extremely aggressive – and he uses the skills he learned from day trading to maximize his profits as a swing trader.
From what I gathered of his interview, Kristjan primarily trades long-only breakouts to the upside on U.S. equities.
Throughout his backtesting and study of historical price action based on the chart patterns taught by William O’Neil, he discovered that this particular breakout pattern has been profitable since the beginning of market history – which is what gave him the confidence and conviction to scale up to trading tens of millions of dollars of risk on these setups.
It’s also worth noting that Kristjan has crafted an 8-figure trading career out of mastering variations on a single setup – the “breakout”.
He didn’t waste years chasing the holy grail trading strategy like many traders who fail to ever find success – he just picked one strategy that made sense to him, and dedicated his career to mastering and optimizing it. (He has since added 2 other strategies to his playbook, but they’re all extremely simple in concept).
Mike Bellafiore, co-founder of SMB Capital (one of the most successful prop trading firms in the United States), is a huge proponent of this theory. He often points out the fact that he knows several 8-figure traders who are at the top of their game who only trade variations of a single strategy or setup.
This is an important fact that new traders ought to be aware of. Not only do you not need to have a high win rate to make good money as a trader – you don’t need to overcomplicate your process with dozens of setups and strategies, either.
You just need to get really good at making money out of a single setup that has stood the test of time. Anything beyond that is optional.
One invaluable piece of advice Kristjan gives in his interview is to backtest your strategies. Pick a strategy you like, then prove it works, then master it.
“Everyone should do it. Whatever setup, if you stumble across a setup and you want to trade it, backtest it! Look through hundreds if not thousands of examples of that setup and build a database. And go through that database once in a while, that’s how you memorize it. Trading is all about pattern recognition.”Kistjan Kullamägi (@17:00 minutes)
(If you’re unfamiliar with backtesting I have a video tutorial covering how I approach the backtesting process which you can watch here)
As for his specific techniques, Kristjan uses a handful of indicators to gauge the markets and filter for only high-momentum stocks, and he relies heavily on classical chart patterns that have stood the test of time for decades if not centuries.
Kristjan uses the 10-day and 20-day moving averages for trailing-stops and to assess momentum (10MA for fast stocks, 20MA for slower ones). If he’s involved in a winning trade and that stock’s daily chart holds and closes below these MAs, he exits his position – which is very similar to many trend-following techniques designed to capture as much of a large move as reasonably possible.
He says that most moves occur in short bursts of momentum after a breakout, usually lasting only a few days to a week or so, and his goal is to capture those bursts. He often sells part of his position into those bursts to lock in some initial profits and mitigate some of his open risk.
There are times in the interview where he struggles to clearly explain his strategy because it has become so intuitive to him that he doesn’t always have clear rules on what he needs to see – but he always knows a good trade when he sees it.
His approach, while systematic in spirit, involves a lot of discretion and intuition which has been built up through years of experience trading the markets. But he does have loose rules around what he needs to see in order to make his trading decisions – and he never budges when it comes to his stop loss.
He also uses fundamental analysis to enhance his conviction in particular opportunities (and in turn his position size and holding-time), and he uses overall market sentiment and indexes to form his directional bias.
However its worth noting that in the interview he mentions that while using fundamental analysis in conjunction with his technical setups has dramatically improved his profitability, you can still be very profitable relying solely on a technical approach to trading.
Fundamentals are the fuel for large moves, and understanding and including them in your approach can enhance your edge – but the large moves can still be captured purely through technical approaches without employing fundamentals. Price action is price action regardless of what caused it to move.
Kristjan never buys breakouts during a bear market, preferring to go to cash during market sell-offs, and only trades into strength – which flies in the face of most trading guru advice which says you must buy low and sell high to make a profit.
Kristjan prefers to buy high and sell higher, which is a common theme among many of the best traders in the world.
But despite the fact that he buys strong markets, he is an extremely aggressive trader who is quick to enter and exit positions – often leaving large wicks on the charts as he trades so large he moves prices when his orders are executed – and interestingly, despite being exceptionally profitable, most of his trades result in a loss.
Or in other words, he is wrong in his analysis frequently.
You’ve Gotta Be A Loser to Be A Winner
Because he trades such large position sizes, even though he’s a swing trader who prefers to hold positions for days or even weeks at a time, he doesn’t hold on to a loser for any longer than it takes to realize the trade is not working.
If his trade is not working by the end of the day he placed it, or sometimes even within a few minutes of placing it depending on the circumstances, and the stock trades past his stop, he exits and takes the loss without hesitation.
His trading setup and thesis depends on the intraday range and daily structure levels he uses to identify his breakout trading opportunities, and if his thesis is invalidated, he has no qualms about taking the hit and moving on to the next trade.
He does not base his stop loss on a monetary amount or an emotional pain limit.
He bases his stop loss on his trading thesis and relevant technical levels, and adjusts his position size accordingly. If he needs a wide stop, he trades a smaller position – and if he identifies an opportunity that allows for an extremely tight stop, he trades a much larger position – but he always honors his stop loss.
Most traders hate being wrong, and it’s the primary reason why they blow their accounts or fail to ever find long-term success. They refuse to take a loss. Either they’re too proud to admit defeat, or they’re too blinded by greed that they refuse to take the hit.
This is a loser’s mindset. And it will always result in a losing outcome. A true winner is not afraid to be wrong, and take a loss. That’s what makes them a winner.
It’s not their ability to be right all the time – but the ability to pick their battles, stick to their strengths, and refuse to let a loss set them back any further than is necessary.
In trading the risk of losing is always present no matter how good your strategy is. It’s the cost of doing business in an uncertain market where predicting the future accurately is impossible.
But if you cannot learn to take a loss quickly, gracefully and without emotional disruption, then you will never learn how to make your big winners stick and accumulate and compound over time as a consistently profitable trader.
“Being able to honor your stops is what separates the top dogs from the mongrels on Wall Street.”Buzzy Schwartz, Pit Bull
Win rate isn’t everything. In fact, it’s almost irrelevant.
Obviously you need to win some trades to make money, but the real factor that truly makes all the difference is your risk to reward ratio.
If you are bagging 10R wins regularly and keeping your losses as small as possible, you can have a serious edge over the markets while still losing the overwhelming majority of your trading executions.
Don’t fall into the trap of thinking you need to have an extremely high win rate to be an extremely profitable trader.
“I’m a home run trader. I know a lot of traders who go for a higher win rate and try to make money on more trades, but that’s the style I’ve chosen and it works for me. I try to catch the big ones and have a very low win rate, so most of my trades just even themselves out. And then maybe 20% or 15% of the trades is where the money is for me.”Kistjan Kullamägi (@55:00 minutes)
If anything, it’s the opposite. The more relaxed you are about your win rate, but the more determined you are to let your trades play out to their full profit potential, the better your results will be.
At least that’s true of swing-trading. For scalping and day-trading, it’s a slightly different story – but hopefully Kristjan’s story and approach to trading inspires you to see the profit potential in swing-trading using technical analysis.
Best of all, this technique has worked for hundreds of years. As Kristjan says in the beginning of his interview:
“I read a book by William O’Neil “How To Make Money In Stocks”, and that’s where I really got the idea that stocks move in the same patterns as they have done for a hundred years. I realized wow – it’s the same patterns. Nothing is different. It was the same patterns in the early 1900s and even late 1800s, it was the same patterns in the 50s, same patterns in the 80s, in the 90s, and it’s the same patterns now.”Kistjan Kullamägi (@15:00 minutes)
Kristjan’s approach to trading has pros and cons.
The pros are that he often captures big wins, or what he refers to as “home run” trades, and he can often get in on the move early if he catches the initial breakout.
The cons are that breakouts frequently fail or fake-out, and he takes frequent losses.
The way he manages to be profitable despite losing the majority of his trades is through risk management.
He takes small losses, usually less than a few percent of his account balance, and he lets his big winners run. That’s the approach every majorly successful trader I’ve ever come across employs. They take their losses quickly, keep them small, and yet are patient with their winners and let them ride.
This means that you can be wildly profitable despite having a dismal win rate.
Kristjan mentions in the interview that he doesn’t have a cap on how many positions he allows himself to have – and there have been times when he has had upwards of 30 open trades at any given time.
Humoursly, he mentions that he has only had more than 30 positions open 3 separate times in his trading career – and all 3 times when that happened the market soon entered a prolonged bear market.
He calls this his “proprietary indicator” for detecting market crashes – and most professional traders have some variation of this as they develop experience.
For my first year of trading it was the direction of my trade – every trade I took, the market moved the other way… to the point where I began to wonder if every time I saw a trading opportunity maybe I should trade in the opposite direction.
I’m sure many beginner traders can relate!
Conclusion & Resources
This episode of Chat With Traders was particularly interesting.
I’ve listened to all 212 episodes, and they’re all interesting and have gems of wisdom to offer no matter what style of trading or market interpretation the interviewee subscribes to – but some episodes are compulsory listening for any truly aspiring trader.
This is certainly one of them.
If you want to listen to the entire episode (which I strongly encourage you do) – check it out by clicking here.
And if you want to follow Kristjan and learn more about his style of trading (or even watch him trade live on Twitch), he has a website at chartsandstories.com, and here are his social handles:
Last but not least, if you want to read the book that jumpstarted Kristjan’s foray into his breakout strategy (and other classic strategies) that helped him turn a few thousand dollars into tens of millions in trading profits, here it is:
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