Win rate vs reward-to-risk: why you don't need to be right most of the time

"What's your win rate?" is the first question many new traders ask. It's also the wrong one on its own. A strategy that wins 35% of the time can make money, and one that wins 70% of the time can slowly drain your account. What decides it is the win rate combined with how much you win compared with how much you lose.

Expectancy: the only number that matters

Expectancy tells you what you make, on average, per trade:

Expectancy = (Win rate × Average win) − (Loss rate × Average loss)

It's easiest in R, where 1R is the amount you risk on a trade.

Trader A wins 70% of trades, average win 0.5R, average loss 1R: 0.70 × 0.5 − 0.30 × 1 = +0.05R per trade. Barely positive, and one bad week wipes it out.

Trader B wins 40% of trades, average win 2R, average loss 1R: 0.40 × 2 − 0.60 × 1 = +0.20R per trade. Four times better, while losing most of the time.

The break-even table

How often you need to win just to break even, for a given reward-to-risk:

Break-even win rate = 1 ÷ (1 + Reward/Risk)

Why high win rates can be a trap

High win rates often come from taking profits quickly and letting losers run. It feels great: green trade after green trade. Then one loss, or one stop you moved "just this once", gives it all back. If your average loss is much bigger than your average win, check your expectancy before you celebrate the win rate.

Why low win rates are hard (but fine)

Strategies with 2–3R targets lose more often than they win. That is psychologically tough: five losses in a row are normal. The maths only works if you keep your losses at exactly 1R and let the winners reach their targets. Cutting winners early or widening stops breaks it.

How to use this

1. Log every trade in R, not in euros.
2. After 30–50 trades, work out your win rate, average win and average loss.
3. Calculate expectancy. Positive? Keep going and improve execution. Negative? Change one thing (entries, stop placement or targets) and measure again.

You don't need to be right most of the time. You need your winners to be worth more than your losers, and the discipline to let the numbers play out.