Direction accuracy versus expected payoff

Question

A model predicts positive returns with 60% accuracy. Is that sufficient evidence of a profitable long-short strategy?

Short answer

No. Profitability also depends on the magnitudes of gains and losses, trading costs, calibration, position sizing and feasible execution. A model can be right often but lose on rare large moves. Compare against the base-rate classifier and estimate conditional payoff distributions on independent data. State the decision rule and assess net, risk-adjusted outcomes rather than treating accuracy as profit.

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Lessons behind this question

Finance-aware validation
Cross-Validation and Information Criteria
Expectation, Mean, and Variance

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