Win/Loss Ratio

What it is

The win/loss ratio compares the number of winning trades to losing trades over a chosen period. It’s a simple measure of how often a trading strategy produces winners versus losers, but it does not measure how much is won or lost per trade.

Formula and related metrics

• Win/Loss ratio = Wins ÷ Losses
• Win rate (probability of success) = Wins ÷ Total trades

Example notation: a ratio of 2.0 means two winning trades for every losing trade (2:1).

How to interpret

• Ratio > 1.0: more winning trades than losing trades.
• Ratio = 1.0: equal numbers of wins and losses.
• Ratio < 1.0: more losing trades than winning trades.
• If losses = 0, the ratio is mathematically undefined; report as “no losses” or consider alternative summaries (e.g., win rate and average profit).

Example

If you make 30 trades with 12 winners and 18 losers:
– Win/Loss ratio = 12 ÷ 18 = 0.67
– Win rate = 12 ÷ 30 = 40%
A ratio of 0.67 indicates more losses than wins.

Why it matters — and its limits

• Use: It quickly highlights whether a strategy produces more winners than losers and can flag the need to review a strategy.
• Major limitation: It doesn’t account for trade size or dollar value per win/loss. A high win/loss ratio can still be unprofitable if losing trades are much larger than winning trades.
• Complementary metrics needed: average profit per winning trade, average loss per losing trade, and the risk/reward ratio.

Risk/Reward and how it fits

The risk/reward ratio compares potential loss to potential gain on a trade:
– Example: Buy at $5.50, stop-loss $5.00 (risk = $0.50), target $6.50 (reward = $1.00) → risk/reward = 0.50.
– Even with a low win/loss ratio, a favorable risk/reward can produce profit; conversely, a high win/loss ratio can still lose money if rewards are small relative to risks.

Practical tips

• Always combine win/loss ratio with win rate, average win, average loss, and risk/reward ratio.
• Track these metrics over consistent timeframes and trade types (e.g., intraday vs swing) to avoid misleading comparisons.
• Use adequate sample sizes before judging a strategy—small samples can be noisy.
• Review position sizing and stop-loss discipline; controlling loss magnitude is often more important than increasing the number of wins.

Key takeaways

• The win/loss ratio shows how often you win versus lose but not how much you gain or lose.
• Interpret it together with risk/reward and average profit/loss per trade.
• A profitable strategy requires both a sensible win rate and favorable reward relative to risk; neither metric alone is sufficient.