Win Rate

The win-rate trap

A 90% win rate sounds impressive, but if your wins average $10 and your losses average $200, you have a losing system. Always pair win rate with the payoff ratio (avg win / avg loss).

Win rate × payoff

A strategy needs: win_rate × avg_win > (1 − win_rate) × avg_loss

Examples that break even:

• 70% win rate with 1:2 payoff (wins half the size of losses) = breakeven
• 30% win rate with 1:3 payoff (wins 3× losses) = profitable
• 50% win rate with 1:1 payoff = breakeven

Trend vs reversion

Trend strategies typically have win rates of 30–45% but big payoff ratios (3:1+). Mean-reversion strategies have higher win rates (55–70%) with smaller payoff ratios. Both can be profitable.