Play the numbers game
Achieving positive trading results doesn’t always depend on having a high win rate. Think about win size: how much you gain when you’re right (and how little you lose when you’re wrong.)
Let’s use the example of a trader who uses a 3:1 reward-to-risk ratio. He gains 3 in winning trades, and loses 1 when he’s wrong.
At this level of reward-to-risk, the trader can have a win rate of 30% and still be profitable.
To prove it, here are the results for that 3:1 trader who wins 3 out of every 10 trades. Because of the favourable R:R, the trader’s account is up even with a win rate that may be considered low.
The Relationship Between Reward-to-Risk Ratio and Win-Rate
This table shows the minimum R:R and win-rate needed for breakeven.
Use it as a helpful reminder that you can achieve positive results even with a small number of wins, as long as they outweigh the impact of losses.
|Reward to Risk (R:R)||1:1||1.5:1||2:1||2.5:1||3:1||4:1||5:1||10:1||20:1|
|Breakeven Win Rate||50%||40%||34%||29%||25%||20%||17%||10%||5%|
Reading the table from left to right:
If you enter trades with a 1:1 reward-to-risk ratio, your win-rate needs to be better than 50% to be profitable.
If you enter trades with a 1.5:1 reward-to-risk ratio, your win-rate needs to be better than 40% to be profitable.
If you enter trades with a 2:1 reward-to-risk ratio, your win-rate needs to be better than 34% to be profitable.
And so on.