Risk
In one sentence
The percentage of trades that end in profit - a number that means nothing on its own, because it only has value next to the reward-to-risk ratio.
High win rates are psychologically comfortable and often come from strategies that take small profits and hold losers, which is a shape that eventually produces one very large loss.
Low win rates are uncomfortable and common among trend-following systems that are wrong most of the time and make it all back in a handful of trades.
The mistake it causes: optimising for the feeling of being right instead of for expectancy.
Win rate only has meaning next to reward-to-risk. The pairing is the system; either half on its own is noise.
| Win rate | R | Expectancy |
|---|---|---|
| 70% | 0.3 | −0.09R |
| 60% | 0.8 | +0.08R |
| 45% | 2.0 | +0.35R |
| 30% | 4.0 | +0.50R |
The trader winning 30% of the time has the best system in that table and the worst experience trading it. Seven losses out of ten feels like failure even while the account grows, which is why high-R systems are abandoned more often than they fail.
The easiest way to raise a win rate is to take profit early and give losers room. That produces a long string of small wins and the occasional very large loss, which is a shape that works until the one trade that does not. Several famous blow-ups have exactly this profile.
At a 45% win rate, eight consecutive losses arrive roughly once every 400 trades, which is about one active year. At 35% they arrive far more often. Any risk setting that cannot survive the streak your win rate implies is not a risk setting. Run your numbers through the risk of ruin simulator.
This term is explained in context in the primer - and priced exactly in our free risk calculators .
More in Risk: Stop loss, Take profit, Position sizing, R multiple.
Education only, not financial advice. Trading is high risk and most retail accounts lose money.
