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If Risk and Reward are methods that help traders plan their trades to protect themselves from risk. One thing that traders should be aware of is the Win Rate, a tool to measure traders' effectiveness in finding the winning rate in trading.

 

What is Win Rate?

Win Rate is the winning percentage from trading once and is used to measure a trader's performance or accuracy.

 

However, having a high win rate does not necessarily mean you will be a successful trader or will always make a profit. This is because the Win Rate only measures the accuracy of exiting positions if closed with a profit and shows the total number of winning trades you have. For example, if you trade 10 times and win 6 times, your Win Rate is 60%.

 

 

Why is the Win Rate high but the Risk Reward Ratio low? 

 

High Win Rate but Low-Risk Reward Ratio.

Some traders achieve a high Win Rate of 60% out of 100 trades. However, their Risk Reward Ratio for each trade might be 1:0.5, meaning they risk 1 time for a potential reward of 0.5 times. This indicates that the trader focuses on short-term trades, closing positions immediately upon gaining a profit. As a result, their Win Rate is higher than their overall profit.

 

 

Why is the Win Rate low but the Risk Reward Ratio high?

 

Low Win Rate but High-Risk Reward Ratio.

Some traders achieve a low Win Rate of 40% out of 100 trades. However, their Risk Reward Ratio for each trade might be 1:5, meaning they risk 1 time for a potential reward of 5 times. 

 

For instance, they might experience 60 losses of $100 each (totaling $6,000) and gain 40 profits of $500 each (totaling $20,000). This suggests that the trader prioritizes long-term trades to secure substantial profits, resulting in a lower Win Rate than their overall profit.

 

 

 

Take an example from the original table to calculate Win Rate for each asset.

 

Group	Asset	RRR	Win Rate
Group 1	BTC/USD	1:0.5	67%
Group 2	CAD/JPY	1:1	50%
Group 3	AAPL	1:5	17%

 

For example, from trading AAPL, the Win Rate can be calculated as follows.

Formula:

Minimum Winrate = 1 / (1 + Reward:Risk) x 100

Minimum Winrate = 1 / (1 + 5) x100

Minimum Winrate = 1 / (6) x100

Minimum Winrate = 0.166 x100

Minimum Winrate = 16.6% or approximately 17%.

 

 

If traders want to measure the performance of all traders' portfolios, such as a trader's portfolio has 100 trades, 50 wins, and 50 losses. Traders can use the following formula to calculate:

 

Formula:

% Win Rate = Number of winning trades / Total number of trades x 100

% Win Rate = 50 / 50 x100

% Win Rate = 0.5 x 100

% Win Rate = 50%

 

Ready to start trading with more confidence? Calculate your Win Rate and practice strategies with IUX’s free demo account. Train risk-free before investing for real—sign up today!