Definition
The Win/Loss Ratio compares the number of winning trades to losing trades. It provides insight into the balance between successful and unsuccessful trades, offering a snapshot of trading effectiveness.
Formula
Divide the total number of winning trades by the total number of losing trades.
Win/Loss Ratio = Number of Winning Trades / Number of Losing Trades
Example 1:
- Winning trades: 40
- Losing trades: 20
- Calculation: Win/Loss Ratio = 40 / 20 = 2
- Interpretation: You have twice as many winning trades as losing ones.
Example 2:
- Winning trades: 75
- Losing trades: 25
- Calculation: Win/Loss Ratio = 75/ 25 = 3
- Interpretation: A higher ratio indicating stronger trading performance.
| How It Can Be Used | Limitations |
|---|---|
| Assessing trade success frequency | Ignores the magnitude of each profit or loss |
| Comparing performance across strategies or periods | Can be misleading without context of average P/L |
| Setting improvement targets for trading strategies | Doesn’t reflect risk-reward balance |
In Practice
A high Win/Loss Ratio is encouraging, but it’s essential to consider the size of your wins and losses. Small wins and large losses can lead to a favorable ratio but poor profitability.
