Win Ratio In Trading – What It Is And Why It Is Important (High Win Rate Trading Strategies Explained)

The win ratio in trading is one of the most important parameters to evaluate a trading strategy. High win rate trading strategies are important to make you stick to your trading plan and not abandon it.

The win ratio is the winning trades divided by the losing trades. A high win ratio is important because it reduces behavioral mistakes and ruin. High win rate trading strategies matter a lot.

Many traders underestimate the importance of the win ratio and thus commit grave behavioral mistakes when they trade their strategies live. The win ratio is important because it influences your behavior in the markets and a low win ratio increases the risk of ruin in trading.

At the end of the article, we provide a mathematical calculation to show the optimal capital allocation per trade (or strategy) to allow a margin of safety to avoid ruin.

How to calculate the win rate in trading?

To avoid any doubt about what the win ratio (win rate) in trading is, we start with a definition:

The win ratio in trading is the number of winning trades compared to the total amount of trades. Here is an example:

Let’s assume you develop a strategy that has 556 trades over the last 20 years. 349 trades showed a profit, 5 trades were break-even, and 202 showed a loss.

To find the win ratio you need to divide the winners by the total amount of trades: 349 divided by 556. This is 0.628. To get the percentage, you need to multiply by 100, and thus 62.8% of the trades turned out to be winners.

Hence, the win ratio is 62.8%.

Profits vs. win ratio

The main idea behind trading is to maximize profits – not the win ratio. A strategy can have a very low win ratio but still be very profitable if the winners are huge and offset the losers.

As an example, look at the win ratio of the 200-day moving average on the S&P 500 from 1960 until August 2021: 28%!

72% of the trades turned out to be either flat or losers. The strategy is still very profitable because the 200-day moving average lets you ride the big trends, and thus the average winner is substantially bigger than the average loser.

Commissions and the win ratio in trading

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