The Win/Loss Ratio is a simple way to see how often you win compared to how often you lose when you’re trading. This number tells you if you’re winning more trades than you’re losing, which helps you know if your trading plan is working.
Win/Loss Ratio = Number of Winning Trades / Number of Losing Trades
| 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 |
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.
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.
