Profit and Loss Ratio

Let's talk about what the win-loss ratio is

When evaluating a trading system, I believe we should focus on one core key indicator: the 'win-loss ratio'. The so-called win-loss ratio refers to the average amount of profit divided by the average amount of loss.

For example, if you invest 1 million yuan and trade 10 times using a certain trading system, with 4 winning trades making 150,000 yuan, 250,000 yuan, 350,000 yuan, and 450,000 yuan respectively; and 6 losing trades losing 100,000 yuan, 150,000 yuan, 100,000 yuan, 50,000 yuan, 70,000 yuan, and 200,000 yuan. At this point, the average profit during winning trades is 300,000 yuan, and the average loss during losing trades is 111,700 yuan, resulting in a win-loss ratio of 30/11.17 ≈ 2.69. If you continue to trade using this trading system, whether it's 100 times or 1000 times, theoretically, you can achieve profitability with a win-loss ratio of 2.69. A win-loss ratio below 1 indicates a loss.

However, when making objective evaluations, we need to consider certain redundancy factors. Personally, I believe the win-loss ratio should not be lower than 2 under any circumstances. Specifically:

A win-loss ratio of 3 can be considered passing, equivalent to 70 points;

A win-loss ratio of 4 can be considered good, equivalent to 80 points;

A win-loss ratio of 5 can be considered excellent, equivalent to 90 points;

Trading systems with a win-loss ratio higher than 5 can be considered perfect.

It is important to note that trading systems with a win-loss ratio higher than 5 are very rare. I recommend that everyone calculate the win-loss ratio of their long-term trading system (or buying and selling rules) to better assess its effectiveness.

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