Win rate is the percentage of trades that end in profit. It is one of the first numbers beginners look at, and it is easy to see why. A strategy that wins seven times out of ten sounds better than one that wins four times out of ten. The trouble is that win rate on its own says nothing about how much you make when you win or how much you lose when you do not. Judging a strategy by win rate alone is one of the most common mistakes in trading.
Why win rate feels so important
Winning feels good, and losing feels bad. A high win rate means more good days than bad ones, which is comforting. It can also look impressive in adverts and on social media, where a claim of winning most trades is easy to understand.
But your account does not care how many trades you win. It cares about the total amount you make minus the total amount you lose.
The maths that matters
Two other numbers sit alongside win rate: the average size of a winning trade and the average size of a losing trade. Together they give you what is often called expectancy, the amount you might expect to make or lose per trade on average over a large number of trades.
Here is a purely illustrative example, ignoring costs:
- Strategy A wins 70 per cent of the time. Its average win is £50 and its average loss is £150. Over 10 trades, that is seven wins worth £350 and three losses worth £450, a net loss of £100.
- Strategy B wins 40 per cent of the time. Its average win is £150 and its average loss is £50. Over 10 trades, that is four wins worth £600 and six losses worth £300, a net gain of £300.
The strategy that wins less often comes out ahead, because its winners are much bigger than its losers. Our article on expected value in trading explores this in more depth.
How a high win rate can hide trouble
Some approaches produce a high win rate by taking small profits quickly while letting losses run. That can feel successful for weeks, until one large loss wipes out many small gains. Others rely on holding losing trades in the hope they come back, which works until the day one does not.
A related idea is the risk-reward ratio, which compares how much you stand to lose on a trade with how much you hope to gain. Win rate and risk-reward have to be read together. A low risk-reward strategy needs a high win rate to survive, while a high risk-reward strategy can cope with more losing trades.
What to look at instead
A more rounded way to judge a strategy includes:
- Average win and average loss, and how they compare.
- Expectancy per trade after realistic costs such as spreads and financing.
- The largest losing streak and the deepest drop from a previous high in the account.
- The number of trades in your sample. Twenty trades is far too few to draw firm conclusions.
- Whether results are consistent across different market conditions.
The emotional side
A low win rate strategy can be hard to follow, even if the numbers work. Long losing streaks are uncomfortable, and many traders abandon a sound plan just before it would have paid off. Knowing your expected losing streaks in advance can make them easier to sit through. Equally, a high win rate strategy can lull you into oversizing because it feels safe.
Bringing it together
Win rate tells you how often you win, not whether you make money. Average win size, average loss size, costs and the size of your sample all matter just as much. Judging a strategy on the full picture, rather than one headline number, is a simple habit that can save a lot of frustration.
If you want to check how you evaluate your own trading, take our free trader assessment.
