# IS IT ALL ABOUT WIN RATE?

Daksh Murkute | | |

It’s not about how often you are right or wrong, but it’s about how much you make when you’re right and how much you lose when you’re wrong - George Soros.

I understand that everyone wants to win more, but in trading, the win rate is not everything and no trader should be judged just on the basis of how much they win.

In this blog post, I’m going to show you exactly why win rate is not everything and what else matters in trading, so stick around till the end.

### Contents

Looking at just the win rate to know how good or bad the trader or their strategy is, isn’t the right thing to do.

We need to look at win rate along with the Risk to Reward Ratio and this gives us all the information we’ll need.

## What is win rate?

A trader’s win rate is the number of trades that go in their favor and fetches them a profit out of the total number of trades that they take.

Say that you take 100 trades and out of that, 60 trades were green and the remaining 40 were red. Here, your win rate is 60%.

How do we get that number? It’s easy, just divide the number of winning trades i.e. 60, by the total number of trades taken i.e. 100, and since we need to get a percentage, we multiply it by 100.

Win rate = (No. of winning trades / Total no. of trades) x 100

Use the above formula whenever you are looking to calculate the exact win rate of your strategy or set up.

But now, is win rate the only parameter or metric that you need to consider when it comes to trading? No.

There is something else that you should look at too but before I get to that, here’s why win rate is not everything.

## Win rate is not everything

I’m sure you might think that any trader with say a 70% win rate will make tons of money as compared to a trader with a win rate of say just 30%.

I mean if we just look at the number plainly, then it might seem like yes, 70% win rate will fetch a lot of profits as the trader is winning 70 trades out of the 100 trades that they take.

While on the other hand, a trader that wins just 30 trades out of 100, might seem to lose a lot and might not report any profit.

Do you also think this way? If not, then you already have an idea of what I’m going to talk about further. If yes, then I’m just going to tell you that you are going to learn something new that will change the way you look at trading metrics.

What if I told you that it is quite possible for a trader with a 30% win rate to earn more than another trader with a 70% win rate? Mind boggling right.

Yes, it is possible and in fact, lots of traders have a win of around 50% only. So that means they win and lose almost an equal number of trades but their account is still in the green.

I’m sure that by now, you know that looking at just the win rate won’t tell you the entire story and there’s something else that matters too.

## It’s about Risk to Reward Ratio too

Risk to Reward Ratio or RRR is something that every trader should know about and it literally is one of the most basic metrics of trading.

So the RRR tells you how much you can win or profit for the amount of risk that you take.

Let’s say that you trade the order block trading strategy, or the reversal trading strategy, breakout trading strategy, or even plain support and resistance.

You get a trade opportunity and you need to keep a stop loss of say 10 pips and you are targeting a 30 pips gain on the trade.

Here, your RRR will be 1:3. How did we get this? It’s simple, your target is 3 times your stop loss which means that your reward is 3 times your risk, hence 1:3 RRR.

Now, should we just look at the RRR and decide how good or bad the trader is or the strategy is? No.

This is where I get to the main part of this blog post and I’m now going to tell you the right way to look at a strategy’s metrics.

## Win rate and RRR go hand in hand

Everything that I’ve talked about in this blog post leads us to this. We shouldn’t look at just the win rate or just the RRR. Both of them should be considered together with one another.

I’ll quote George Soros again here, it’s not about how often you are right or wrong, but it’s about how much you make when you’re right and how much you lose when you’re wrong.

So now, even a trader with just a 30% win rate can turn out to be profitable if they have a big RRR and a trader with a 70% win rate can end up in the red if their RRR is too low.

Let’s compare the trading metrics of two traders say A and B.

Trader A has a win rate of 60% while Trader B’s win rate is lesser and it’s 40%.

If you’ve been reading the blog post attentively then you should ask the question as to what their RRR is.

Trader A trades with an RRR of 1:1 only and on the other hand, Trader B’s RRR is 1:2.

Now let’s get down to some calculations. We’ll use these metrics for both traders and we’ll see where each trader stands after taking 100 trades.

Capital = \$100,000

Risk per trade = 1% of capital i.e. \$2,000

Win rate = 60%

RRR = 1:1

Total no. of trades taken = 100

Winning trades = 60% of 100

= 60

Losing trades = (100% - 60%) of 100

= 40% of 100

= 40

Money made in each winning trade = \$1,000 as RRR is 1:1

Money lost in each losing trade = \$1,000 as RRR is 1:1

= (60 x \$1,000) – (40 x \$1,000)

= \$60,000 - \$40,000

= \$20,000

So, Trader A earns \$20,000 after 100 trades based on the winning rate and the RRR.

You might say that this is great, but wait till I show you the calculations for Trader B.

Capital = \$100,000

Risk per trade = 1% of capital i.e. \$2,000

Win rate = 40%

RRR = 1:3

Total no. of trades taken = 100

Winning trades = 40% of 100

= 40

Losing trades = (100% - 40%) of 100

= 60% of 100

= 60

Money made in each winning trade = \$3,000 as RRR is 1:3

Money lost in each losing trade = \$1,000 as RRR is 1:3

= (40 x \$3,000) – (60 x \$1,000)

= \$120,000 - \$60,000

= \$60,000

Do you see that? Trader B has a 50% lesser winning rate than that of Trader A but he still earns 3x more. Now, how did that happen? The answer is RRR.

That’s why you need to understand that having a high win rate is not the entire thing in trading, you need to look for a healthy win rate along with a healthy RRR, and the rest will be taken care of by the probabilities.

Once you understand this simple thing, it will change the way you look at any strategy.

It is human nature that we’d go for only that strategy that wins a lot but after you understand RRR, you’d only go for that strategy that wins enough and on each trade profits enough.