Win rate isn't everything
Risk Management

Win rate isn't everything

7 cards and 4 quick questions. About 2 min.

The lesson in full

  1. One method wins 8 trades out of 10. Another wins only 3 or 4. The second can still be the better one, and expectancy shows why.

  2. Expectancy is what a method makes on average per trade: (win rate × average win) minus (loss rate × average loss).

  3. Method A wins 80% of trades at +US$100 but loses 20% at -US$500. 0.8 × 100 = 80, and 0.2 × 500 = 100. Expectancy: -US$20 per trade.

  4. Method B wins only 35% at +US$300 and loses 65% at -US$100. 0.35 × 300 = 105, and 0.65 × 100 = 65. Expectancy: +US$40 per trade.

  5. Over 100 trades, Method A loses about US$2,000 and Method B makes about US$4,000. Spreads and fees come off every trade, so subtract them too.

  6. Common mistake

    Myth: a high win rate means a good method. Many small wins can be wiped out by a few big losses. How much you win and lose matters as much as how often.

  7. Key takeaway

    A high win rate feels good. Positive expectancy, after costs, pays the bills.

Quick check

  1. Expectancy tells you... The average result per tradeExpectancy blends how often you win with how big wins and losses are, giving one average per trade.
  2. 80% wins at +US$100, 20% losses at -US$500. Expectancy? -US$20 per trade0.8 × 100 = 80 and 0.2 × 500 = 100. 80 minus 100 = -US$20.
  3. A strategy that wins 35% of the time can make money if... Its wins are much bigger than its lossesWith few wins, each win must be big enough to cover several small losses.
  4. Win 50% at +US$200, lose 50% at -US$100. Expectancy? +US$50 per trade0.5 × 200 = 100 and 0.5 × 100 = 50. 100 minus 50 = +US$50.

Words in this lesson

Risk Management

  1. Your safety exit: stop loss
  2. How much to risk
  3. Risk and reward
  4. Win rate isn't everything
  5. The maths of losses
  6. Staying in the game
  7. Backtesting and overfitting
Practise it now: Stop Loss Sniper Practise it now: Survival Math Practise it now: Martingale Trap
Try it with live numbersProfit calculatorProfit, loss and risk/reward of a trade