Win rate measures the percentage of closed trades that produced gains over a defined sample period.
Win rate measures the percentage of closed trades that produced gains over a defined sample period. It shows how often a strategy wins, not how much money the strategy makes.
Win rate matters because it helps evaluate a trading process, but it can mislead when used alone. A strategy can win often and still lose money if the losing trades are much larger than the winning trades.
1win rate = winning trades / total closed trades x 100
If a strategy has 42 winning trades out of 70 closed trades, the win rate is 60%.
| Strategy | Winning trades | Losing trades | Win rate | Average win | Average loss |
|---|---|---|---|---|---|
| A | 60 | 40 | 60% | $100 | $250 |
| B | 40 | 60 | 40% | $300 | $100 |
Strategy A has the higher win rate, but its average loss is much larger than its average win. Strategy B wins less often but may perform better if the average gain more than offsets the losing frequency. The win rate alone is not enough.
| Metric | What it measures | Limitation |
|---|---|---|
| Win rate | Percentage of trades that were gains | Ignores size of gains and losses |
| Win/loss ratio | Number of wins compared with number of losses | Also ignores average payoff size |
| Risk-reward ratio | Planned gain compared with planned loss | Depends on probability and execution |
| Expected value | Probability-weighted average outcome | Depends on data quality and assumptions |