Win rate, risk/reward and expectancy: the 3 numbers that really matter
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Winning 70% of your trades guarantees nothing. Here is how risk/reward and expectancy alone decide whether a strategy makes money.
- Win rate on its own says nothing about profitability.
- Expectancy = (win rate × average win) − (loss rate × average loss).
- With a 1:2 risk/reward, you only need to win more than 33.3% of trades.
- Measure these numbers over at least 30–50 trades before judging a method.
Ask a beginner what makes a good strategy and the answer is almost always “winning often”. It is the most expensive mistake in trading. A system that wins 8 trades out of 10 can wipe out an account, while one that wins only 3 out of 10 can be excellent. The difference comes down to three numbers every trader should know by heart for their own results.
1. Win rate
Win rate is the percentage of winning trades: 45 winners out of 100 trades is 45%. It is the most visible and most flattering metric, but on its own it misleads. A trader who banks small gains quickly and lets losses run “until it comes back” will show a high win rate… right up to the loss that erases six months of profits.
2. Risk/reward (the gain-to-loss ratio)
Risk/reward compares the size of your average win with the size of your average loss. If you make $200 on average when you are right and lose $100 when you are wrong, your ratio is 2 to 1 (often written 1:2 or “2R”).
It is usually expressed in R, the unit of risk: 1R is the amount you accept to lose if your stop-loss is hit. A trade that makes three times that risk is worth +3R. Thinking in R lets you compare trades of different sizes across different markets.
Minimum win rate for a given ratio
For any ratio there is a break-even win rate below which you lose money (before fees):
| Reward : risk | Break-even win rate |
|---|---|
| 0.5 : 1 (you make half of what you risk) | 66.7% |
| 1 : 1 | 50% |
| 1.5 : 1 | 40% |
| 2 : 1 | 33.3% |
| 3 : 1 | 25% |
3. Expectancy
Expectancy combines the first two numbers. It answers the only question that matters: how much do you make, on average, per trade?
where W is the win rate. Expressed in R it becomes very telling:
- Trader A: 70% win rate, average win 0.5R, average loss 1.5R → 0.7 × 0.5 − 0.3 × 1.5 = −0.10R per trade. A losing trader despite 7 winners out of 10.
- Trader B: 40% win rate, average win 2R, average loss 1R → 0.4 × 2 − 0.6 × 1 = +0.20R per trade. Over 100 trades risking $100 each, that is about +$2,000 before fees.
Profit factor is another angle on the same idea: gross profit ÷ gross loss. Above 1 the strategy makes money; 1.5 to 2 is solid; above 3 on a small sample, suspect luck.
Fees change everything
The maths above ignores commissions and slippage. On a crypto spot market, a typical 0.1% fee on entry and on exit costs 0.2% of the position per round trip. If your stop is 0.5% away from entry, fees already amount to 0.4R per trade! This is why very tight scalping is so hard to make profitable: the closer the stop, the heavier fees weigh in R terms.
How many trades before you can judge?
Over 10 trades, luck dominates: a good strategy can show 2 winners and a bad one 8. Below 30 trades the statistics are barely indicative; from 50 to 100 trades executed the same way, they become usable. Losing streaks are also normal: with a 40% win rate, a run of 6 or 7 consecutive losses will happen sooner or later. If your position size does not let you absorb that calmly, it is too big (see our guide to the 1% rule).
How to improve your expectancy
- Cut losses where you planned. Moving your stop “to give it room” raises the average loss and destroys the ratio.
- Let winners work. Taking profits too early is the mirror mistake: it shrinks the average win.
- Filter your setups. Fewer but better-chosen trades often improve both numbers at once.
- Measure. You cannot improve what you do not measure: keep a journal or use the simulator, which computes win rate, gain/loss ratio, profit factor and expectancy from your history automatically.
Bottom line
Drop the question “how many trades do I win?” and replace it with “how much do I make per trade, on average, in R, after fees?”. A modest win rate paired with a good risk/reward is the signature of most consistently profitable traders.
Educational content only — not investment advice. Trading involves the risk of losing capital.