Win rate and risk-reward: do the numbers fit together?
A win rate describes the proportion of profitable trades in a sample. It says nothing on its own about the size of gains and losses. A useful record needs all three quantities, measured after costs.
Two hypothetical records
Record A has 70 winning trades averaging $20 and 30 losing trades averaging $60. Gains total $1,400; losses total $1,800. The result is a $400 loss despite a 70% win rate.
Record B has 40 wins averaging $60 and 60 losses averaging $20. Gains total $2,400 and losses $1,200. The result is a $1,200 gain with a 40% win rate. These invented records demonstrate arithmetic, not a forecast.
Expected result per trade can be estimated from the observed win proportion multiplied by average gain, minus the loss proportion multiplied by average loss. If averages are already net of costs, do not subtract costs twice.
Targets are not realised averages
A planned $3 target with a $1 planned loss gives a prospective ratio of three to one. It does not demonstrate that real trades will average those amounts. Partial exits, gaps, failed fills and early closures change the record.
A consistent trade review should keep planned and realised figures in separate columns. Otherwise the attractive plan can quietly replace the less attractive outcome.
Sample size and market conditions also matter. Ten trades can produce an unstable estimate, while hundreds drawn from one unusually favourable period can still fail to describe another period. Preserve the dates and account for every trade, including the ones you would rather omit.
| Sample | Win rate | Total gains | Total losses | Net result |
|---|---|---|---|---|
| A | 70% | $1,400 | $1,800 | −$400 |
| B | 40% | $2,400 | $1,200 | $1,200 |