"What's your win rate?" is the wrong first question. A strategy that wins 35% of the time can be profitable, and one that wins 70% can lose money. What matters is how win rate and risk:reward fit together. This guide gives the formulas and a table you can use to sanity-check any setup.
Risk:reward for a single trade
- Risk per unit = |Entry − Stop|
- Reward per unit = |Target − Entry|
- Reward:risk (R:R) = Reward ÷ Risk
Example: buy at $100, stop at $95, target $110.
- Risk = $5, Reward = $10 → 2:1
Break-even win rate
If you win R units when right and lose 1 unit when wrong, you break even (before costs) when:
Break-even win rate = 1 ÷ (1 + R)
At 2:1 → 1 ÷ 3 = 33.3%. Win more than one trade in three and the strategy is profitable on paper.
| Reward:risk | Break-even win rate |
|---|---|
| 0.5 : 1 | 66.7% |
| 1 : 1 | 50.0% |
| 1.5 : 1 | 40.0% |
| 2 : 1 | 33.3% |
| 3 : 1 | 25.0% |
| 4 : 1 | 20.0% |
Expectancy: the number that matters
Expectancy is the average result per trade, measured in R (multiples of the amount risked):
Expectancy (R) = Win rate × Average win (R) − Loss rate × Average loss (R)
Example: 40% win rate, 2R wins, 1R losses:
Expectancy = 0.40 × 2 − 0.60 × 1 = +0.2R per trade
If you risk $100 per trade, that's an average of +$20 per trade before costs. Over 100 trades, about +$2,000, with plenty of variance along the way.
Check any setup with the free risk/reward & break-even win rate calculator.
Why high win rates can still lose
A strategy that takes profits at +0.5R and lets losses run to −1R needs to win 66.7% of the time just to break even. If one loss runs to −3R because the stop was moved, the math gets much worse. High win rates feel good, but the occasional big loss decides the result.
Why low win rates are hard in practice
At 3:1 you only need to win 25% of trades, but you have to sit through long losing streaks. With a 30% win rate, a run of 10 losses in a row is very plausible over a few hundred trades. That's why position sizing with small, fixed risk per trade matters so much for low win-rate strategies.
Include costs
Fees, spreads, slippage and funding reduce every win and increase every loss. Suppose costs equal 0.1R per trade. Then a 2:1 setup is really about 1.9R wins and 1.1R losses:
Break-even win rate = 1.1 ÷ (1.9 + 1.1) ≈ 36.7% instead of 33.3%.
For short-term strategies with tight stops, costs can be a large fraction of R. Use the futures PnL calculator to see fees and funding on a real trade.
Planned vs realized R:R
The ratio you plan is not always the ratio you get. Targets get hit less often than stops on many setups, and exits get managed early. The honest numbers come from your trade history:
- Realized average win (R)
- Realized average loss (R)
- Realized win rate
Put those into the expectancy formula. If the result is positive over a meaningful sample (dozens of trades, not five), you have something to build on.
Worked example: two traders
Trader A wins 65% of trades but averages +0.6R on wins and −1.3R on losses (stops get moved). Expectancy = 0.65 × 0.6 − 0.35 × 1.3 = 0.39 − 0.455 = −0.065R. Trader B wins only 38%, but averages +2.2R wins and −1R losses: 0.38 × 2.2 − 0.62 × 1 = 0.836 − 0.62 = +0.216R. The trader who's wrong more often makes more money.
A pre-trade checklist
- Entry, stop (where the idea is wrong), target (where it's realistically likely to reach)
- R:R ≥ your minimum, for example 1.5 or 2
- Your historical win rate for this setup is above the break-even win rate, with a margin for costs
- Position sized so that 1R = your fixed risk %
Frequently asked questions
What's a good reward:risk ratio? There's no universal number. A ratio only means something together with the win rate you actually achieve for that setup. A 1:1 strategy with a 60% win rate and a 3:1 strategy with a 30% win rate can both be profitable.
Should I always aim for 3:1 or more? Not necessarily. Far-away targets are hit less often, so a higher planned ratio often comes with a lower win rate. Use your journal to find the combination that works for your setups.
How many trades do I need to judge expectancy? More is better. A few trades tell you almost nothing because of luck. Many traders look for at least several dozen to a hundred trades of the same setup before trusting the numbers.
Key takeaways
- Reward:risk alone doesn't tell you if a strategy works. Combine it with win rate.
- Break-even win rate = 1 ÷ (1 + R).
- Expectancy in R is the number to track.
- Costs raise the break-even win rate, especially with tight stops.
Track it
You can't know your real win rate and average R without a trade log. The Crypto & Stock Trading Journal template calculates win rate, average R, expectancy and your equity curve automatically from each trade you log.
Educational content, not financial advice.