"I win most of my trades" and "I'm profitable" sound like the same claim. They aren't. Win rate alone tells you almost nothing without knowing how big the wins and losses actually were.
The math that actually decides profitability
Expectancy per trade = (win rate × average win) − (loss rate × average loss). A strategy winning 70% of the time with an average win of $50 and an average loss of $200 has an expectancy of (0.7 × 50) − (0.3 × 200) = 35 − 60 = −$25 per trade. It's a losing strategy despite winning most of the time, because the rare losses are far larger than the frequent wins.
Flip it: a strategy winning only 35% of the time with an average win of $300 and an average loss of $100 has an expectancy of (0.35 × 300) − (0.65 × 100) = 105 − 65 = +$40 per trade — clearly profitable despite losing most individual trades.
Why this matters for how a strategy is built
Risk/reward ratio (average win ÷ average loss, or the planned version at entry: distance to target ÷ distance to stop) and win rate are a single tradeoff, not two separate scores. A strategy with a 1:3 risk/reward ratio only needs to win about 25% of the time to break even before costs; a strategy with a 3:1 risk/reward ratio needs to win about 75% of the time. Neither ratio is "better" in the abstract — what matters is whether the actual, measured win rate clears the breakeven threshold implied by the actual, measured ratio.
The trap: optimizing win rate at the expense of expectancy
It's easy to build a strategy with a very high win rate by taking small, frequent profits and letting losers run ("it'll come back") — this feels good trade-by-trade and is a classic way to blow up an account, because it inverts the ratio that made the high win rate look achievable in the first place. A strategy's win rate and its risk/reward ratio should be measured together, from the same backtest, never one assumed while tuning the other.
The practical checklist
- Never evaluate win rate without the paired risk/reward ratio from the same sample.
- Compute the breakeven win rate implied by your actual risk/reward ratio, and compare it to your actual measured win rate — not a target one.
- Be suspicious of a very high win rate achieved by cutting winners early and giving losers room — check whether the risk/reward ratio has quietly inverted.
- Remember costs (fees, slippage) subtract from expectancy on every single trade, win or lose — a strategy with a breakeven expectancy before costs is a losing strategy after them.
This is why every Strategy Lab backtest in Atradian reports win rate and average win/loss size side by side rather than either number alone — a headline win rate with no expectancy context is close to meaningless.