The misleading metric
Win Rate — Why a 40% Win Rate Can Beat a 70% One
A high win rate feels good. It also has nothing to do with whether your strategy makes money. Here's how to read it correctly.
The formula
Win rate = winning trades ÷ total trades, expressed as a percentage. A strategy with 60 wins and 40 losses has a 60% win rate.
Why win rate alone lies
Trend-following strategies often win 35–45% of the time but make 3–5x more on winners than they lose on losers. Mean-reversion strategies often win 65–75% of the time but lose more on each loser than they make on winners. Both can be profitable; both can be losers. Win rate by itself can't tell you which.
What to compute alongside it
Pair win rate with average win ÷ average loss (the 'reward-to-risk ratio'). Expectancy = (win rate × avg win) − (loss rate × avg loss). If expectancy is positive, the strategy makes money over time regardless of whether the win rate is 30% or 80%.
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