Understanding the balance between win rate and risk-to-reward ratio is key to achieving profitability in trading. This chart shows that it’s not just about winning more trades; the reward gained per winning trade matters just as much.
For example, with a 1:1 risk-to-reward ratio, a win rate of at least 50% is necessary to break even. Below this threshold, trades would generally be unprofitable. However, increasing the risk-to-reward to 1:3 allows for profitability even with a lower 30% win rate.
The higher your risk-to-reward ratio, the lower win rate you need to stay profitable. A 1:5 risk-to-reward setup can be profitable with a win rate as low as 20%. This demonstrates that even traders who win fewer trades can be profitable if they maximize the reward on each winning trade relative to their risk.
In short, a balanced approach between win rate and risk-to-reward ratio helps traders achieve sustainable profits, regardless of how many trades they win.
