Average win (total R from winning trades ÷ number of wins) and average loss (total R from losing trades ÷ number of losses) are the two numbers that, combined with win rate, determine whether you're profitable. A trader with a 40% win rate can be massively profitable if average wins are 2.5R and average losses are 1R. The ratio of average win to average loss is often the only thing that matters—it's where your edge lives.
- Win rate alone is meaningless; the ratio of average win to loss decides profitability
- Bigger winners than losers is the goal; most traders fail at this
- Expectancy = (win rate × avg win) − (loss rate × avg loss)
- Traders who cut losses at 1R and let winners run often find avg win is 1.5–3R
Most traders obsess over win rate and miss the real number: average win relative to average loss. This is where edge lives.
Win rate is not the point
A trader with a 50% win rate can go broke. Another with a 40% win rate can double their account. Why? Because of how large their wins are relative to their losses.
| Trader | Win rate | Avg win | Avg loss | Expectancy |
|---|---|---|---|---|
| A | 50% | +0.8R | −1.0R | −0.09R (unprofitable) |
| B | 40% | +2.5R | −1.0R | +0.60R (profitable) |
Trader A loses money despite 50-50 odds because average wins are smaller than average losses. Trader B is massively profitable despite 60% losses. This is why "find your best setup" starts with expectancy, not win rate.
How to calculate average win and average loss
From your trading journal:
- Add up all R from winning trades. If you took 10 winning trades for +1.2R, +0.8R, +2.1R, +0.5R, +1.5R, +0.9R, +2.2R, +1.1R, +0.7R, +1.8R, that's +13.8R total.
- Divide by the number of winning trades. 13.8R ÷ 10 = +1.38R average win.
- Add up all R from losing trades. If you took 5 losses for −1.0R, −1.0R, −0.8R, −1.2R, −0.9R, that's −5.0R total.
- Divide by the number of losses. 5.0R ÷ 5 = −1.0R average loss.
Your ratio is 1.38R wins to 1.0R losses, or 1.38:1. Healthy is typically 1.5:1 or better.
Your Journal Should Find the Pattern for You
TRADZY's TradLog tags every trade by setup, session and emotion, then shows where your edge actually is.
Start Your Free Journal →Why the ratio matters
The ratio tells you whether your system can work:
| Ratio | Can you be profitable? |
|---|---|
| <1:1 | No; losses are bigger than wins. Cut loss sizes or change setups. |
| 1:1 | Only if win rate is well above 50%. Tight. |
| 1.5:1 | Yes; even with 40–45% win rate, you're profitable. |
| 2:1 or better | Excellent; you can be profitable at 35% win rate. |
The math is expectancy = (win rate × avg win) − (loss rate × avg loss). If your average loss is always 1R and your average win is 2R, then even at 40% win rate you make +0.60R per trade on average. That compounds.
The three paths to a healthy ratio
Path 1: Cut losses tight, let winners run
The classic approach. Stop loss at exactly 1R. Exit targets or trailing stops for winners, aiming to capture 1.5–3R on your best setups.
Pros: Simple, mechanical, fits most trading plans. Con: Requires discipline on exit decisions.
Path 2: Risk/reward filtering
Only take trades where the target is at least 2:1 or 3:1 reward to risk. Pass on anything 1:1 or worse.
Pros: High win rate trades often don't qualify, so fewer mediocre trades. Con: Passes up some profitable setups with good win rates but lower risk/reward.
Path 3: Oversized winners from specific setups
Some setups naturally produce outsized winners: momentum breakouts, earnings gaps, trend reversals. Others produce many small wins. Run both; the big winners carry the average.
Pros: Reflects real trader behavior; some setups are trend-following (small consistent wins) and others are mean-reversion (rare huge winners). Con: Requires enough sample size to see which is which.
The trade-off: win rate vs ratio
| Win rate | Avg win : loss | Expectancy | Typical trader |
|---|---|---|---|
| 65% | 1:1 | +0.30R | Day trader hitting many small wins |
| 50% | 1.5:1 | +0.25R | Swing trader with tight stops |
| 40% | 2:1 | +0.40R | Breakout trader letting runners run |
| 35% | 2.5:1 | +0.38R | Trend follower, rare big wins |
All four can be profitable. Pick the one that matches your setups and discipline level.
Common mistakes
Oversizing winners artificially
If you cut profits too early (exiting at target instead of letting your rule run), you shrink average win. If your plan says "hold this trend 3 days or until it breaks," hold it. Review your exit discipline in your weekly trade review.
Mixing markets without adjusting risk
A 1R stop on a stock and a 1R stop on a futures contract are vastly different dollar amounts. Calculate average win and loss by market to see which markets actually work for you.
Taking too many small-loss setups
If most of your trades are "I think it might go up, stop at −1R," you're going to have low win rate AND low average win. Define setups precisely. See how to find your best setup.
Bringing it together: expectancy
Once you know your average win and loss, plug them into expectancy:
Expectancy = (win rate × avg win) − (loss rate × avg loss)
If you're at 40% win rate, average win +1.8R, average loss −1.0R:
Expectancy = (0.40 × 1.8R) − (0.60 × 1.0R) = +0.72R − 0.60R = +0.12R per trade
That's +12R on 100 trades, or +1.2R on 1000 shares at $0.01/share, or the equivalent in your account size. Not huge, but consistent.
TRADZY calculates this automatically by market and by setup as you trade.
FAQ
What is average win and average loss?
Average win is the total R from all winning trades divided by the number of wins. Average loss is the total R from all losing trades divided by the number of losses.
Is average win more important than win rate?
They're both important, but average win relative to loss matters more. A 40% win rate is fine if your average win is much bigger than your loss.
What is a good average win to loss ratio?
1.5:1 (wins are 1.5 times bigger than losses) is healthy. 2:1 or better is strong.
How do I improve my average win?
Either exit winners later (trail stops, let them run) or filter for higher risk/reward setups. Or both.
How do I improve my average loss?
Cut losses tighter, stop sooner, or avoid setups with poor risk/reward.
Can I have a profitable strategy with 30% win rate?
Yes, if average wins are large enough. 30% win rate with average win 2.5R and average loss 1R gives expectancy = (0.30 × 2.5R) − (0.70 × 1R) = +0.75R − 0.70R = +0.05R per trade. Tight, but profitable.
Put This Into Practice
- Log your next 20 trades with setup, session and emotion tags
- Let the TradLog surface your best and worst setups
- Run the weekly review and cut one leak
Start Free in TRADZY →
Educational content, not financial advice. Trading involves substantial risk of loss.