Win rate versus payoff
A high win rate can lose money. Here is the exact line. · 6 min
Decide first
A method makes money when its wins pay for its losses. With wins of W R and losses of 1R, the line where they exactly balance is:
| Average win | 0.4R | 0.5R | 1R | 1.5R | 2R | 3R | 4R |
|---|---|---|---|---|---|---|---|
| Wins needed | 71.4% | 66.7% | 50% | 40% | 33.3% | 25% | 20% |
The win rate tells you nothing until you know the payoff, and the payoff nothing until you know the win rate. A 70% method is a loser at 0.4R; a 25% method is a winner at 4R. Put your own numbers on the map and see which side of the line they land on.
Win rate against payoff
The curve is the break-even win rate, 1 ÷ (1 + payoff). Above it a strategy makes money before costs; below it, it loses, whatever its win rate.
| Strategy | Win rate | Average win | Break-even | Expectancy |
|---|---|---|---|---|
| Scalper | 70% | 0.4R | 71.4% | -0.02R |
| Swing | 40% | 2.0R | 33.3% | +0.20R |
| Trend | 25% | 4.0R | 20.0% | +0.25R |
| Yours | 55% | 1.0R | 50.0% | +0.10R |
Worked example: break-even after costs
- Target 2R; costs 0.1R per trade (commission plus slippage).
- Each win nets 2 − 0.1 = 1.9R; each loss costs 1 + 0.1 = 1.1R.
- Break-even = 1.1 ÷ (1.9 + 1.1) = 36.7%, up from 33.3% before costs.
- Small costs matter most for small targets: at 0.5R the same 0.1R moves break-even from 66.7% to 73.3%.
Common mistake: win rate judged without payoff
"My strategy wins 80% of the time" is not a claim about money. Ask for the average win and the average loss before being impressed. Many high-win-rate methods take small profits quickly and let losses run, which puts them just under the line.
Check yourself
- Wins pay 3R and losses cost 1R. What win rate breaks even?
- Your method wins 60% of the time. What average win (in R, losses 1R) do you need just to break even?
- A 2R target, and costs (commission and slippage) of 0.05R per trade. What win rate breaks even now?
Closing round
Trade the range twice: once with 0.5R targets, once with 2R targets. Compare the win rates in the two reviews with the break-even line.
Play the round in the simulator →The simulator's markets are generated, not real prices; the round practises the arithmetic, it does not predict anything.
Further reading: Tharp, Trade Your Way to Financial Freedom. The lesson teaches the idea in its own words and exercises.