Win rate is the percentage of trades that result in a profit out of the total number of trades taken. It is calculated by dividing the number of winning trades by the total number of trades and multiplying by 100. Win rate alone does not determine profitability; it must be evaluated alongside the risk-reward ratio.
Win rate is calculated as: (Number of Winning Trades / Total Number of Trades) x 100. If a trader takes 200 trades and 110 are winners, the win rate is 55%. However, win rate is meaningless without context. A 90% win rate can be unprofitable if the average loss is 10x the average win. Conversely, a 30% win rate can be highly profitable if the average win is 5x the average loss. The break-even win rate depends on the risk-reward ratio: Break-Even Win Rate = 1 / (1 + R:R).
Trader A has a 70% win rate with an average win of $100 and average loss of $300. Expected value per trade: (0.70 x $100) - (0.30 x $300) = $70 - $90 = -$20 per trade (unprofitable). Trader B has a 40% win rate with an average win of $500 and average loss of $150. Expected value: (0.40 x $500) - (0.60 x $150) = $200 - $90 = $110 per trade (profitable). Trader B is far more profitable despite the lower win rate.
Win rate is one of the most commonly cited but most misunderstood metrics in trading. Many beginners fixate on achieving a high win rate, but professional traders know that the relationship between win rate and risk-reward ratio is what determines profitability. Understanding this relationship helps traders set realistic expectations and evaluate strategies objectively.