Risk-reward ratio: why an 80% win rate can still lose money
You're right on eight trades out of ten. Then you check the balance, and it's lower than where you started. How did that happen?
The thing to look at isn't your win rate. It's your risk-reward ratio, or R:R.
R:R compares what you lose at your stop-loss with what you make at your target. Win rate says how often you're right. R:R says how much moves when you are, and when you aren't.
So where did the eight wins go? Each one was small. The two losses were big. Two big losses can quietly erase eight small wins.
It works the other way too. With a 1:3 setup, being right one time in four breaks even before fees. But a far target isn't free. The further it sits, the more often your stop gets hit first.
Often the ratio breaks after entry, by your own hand. You take profit early because a small gain feels fragile. You push the stop back when the trade turns. The 1:3 on your chart ends up less than 1:1.
Before your next order, write down entry, stop and target. If they don't give at least 1:1, it's usually better to skip. Set your take-profit and stop-loss with the order, so you're not deciding mid-trade.
Do you track your results in R, or only in win rate?
$BTC #RiskReward #RiskManagement #CryptoTrading
You're right on eight trades out of ten. Then you check the balance, and it's lower than where you started. How did that happen?
The thing to look at isn't your win rate. It's your risk-reward ratio, or R:R.
R:R compares what you lose at your stop-loss with what you make at your target. Win rate says how often you're right. R:R says how much moves when you are, and when you aren't.
So where did the eight wins go? Each one was small. The two losses were big. Two big losses can quietly erase eight small wins.
It works the other way too. With a 1:3 setup, being right one time in four breaks even before fees. But a far target isn't free. The further it sits, the more often your stop gets hit first.
Often the ratio breaks after entry, by your own hand. You take profit early because a small gain feels fragile. You push the stop back when the trade turns. The 1:3 on your chart ends up less than 1:1.
Before your next order, write down entry, stop and target. If they don't give at least 1:1, it's usually better to skip. Set your take-profit and stop-loss with the order, so you're not deciding mid-trade.
Do you track your results in R, or only in win rate?
$BTC #RiskReward #RiskManagement #CryptoTrading
