The Counterintuitive Truth
Most traders obsess over win rate. "I have a 65% win rate!" they boast. Meanwhile, traders with 40% win rate outprofits them significantly. This counterintuitive reality confuses most traders because they don't understand risk-reward mathematics. A 40% win rate trader with 1:3 RR will ALWAYS outperform a 65% win rate trader with 1:1 RR mathematically.
The Mathematical Proof
Trader A: 65% Win Rate, 1:1 Risk-Reward
- 10 trades: 6 winners × $100 = +$600
- 10 trades: 4 losers × $100 = -$400
- Net result: +$200 profit
- Return: 2% on $10,000 account
Trader B: 40% Win Rate, 1:3 Risk-Reward
- 10 trades: 4 winners × $300 = +$1,200
- 10 trades: 6 losers × $100 = -$600
- Net result: +$600 profit
- Return: 6% on $10,000 account
Trader B with LOWER win rate makes 3x more profit! This is the power of risk-reward ratio.
Expectancy Formula
Example: 60% win rate, $1,200 avg win, $500 avg loss
- Expectancy = (60% × $1,200) - (40% × $500)
- Expectancy = $720 - $200
- Expectancy = +$520 per trade on average
This shows that high win rate with small wins and high RR with lower win rate both can be profitable – but RR matters MORE than win rate.
RR Tiers and Profitability Potential
| RR Ratio | Min. Win Rate for Profit | Realistic Win Rate | Profit Potential |
| 1:1 | 50% | 55-60% | 5-10% yearly |
| 1:2 | 33% | 45-50% | 20-40% yearly |
| 1:3 | 25% | 35-45% | 30-60% yearly |
| 1:4+ | 20% | 30-40% | 50-100%+ yearly |
Why Traders Focus on Win Rate (And Why It's Wrong)
Traders focus on win rate because:
- It feels psychologically rewarding (65 wins feels better than 40)
- It's easy to track and measure
- Social media boasts about win rates, not RR ratios
But this focus is misguided. A 90% win rate with 1:1 RR is unprofitable if you hit the inevitable 10-trade losing streak (which reduces average to 81%).
Building Your Trading Plan Around RR
Professional traders build their entire plan around RR first:
- Identify your realistic win rate (test your strategy for 50+ trades)
- Determine the RR needed for profitability
- Only take trades that meet your RR minimum (typically 1:2)
- Pass on good setups with poor RR ratios
- Focus on taking trades – profitability follows from RR × Win Rate
FAQ
A: Minimum 1:2 for profitability. Target 1:3 or better for consistent growth. At 50% win rate + 1:2 RR = 3x account value yearly.
A: Rarely. Usually high win rate comes with lower RR (tight stops), low win rate comes with higher RR (wide targets). Pros balance between 50-60% win rate at 1:2-1:3 RR.