Win Rate and Expectancy: How to Know if a Strategy Makes Money

"What is your win rate?" is the first question many traders ask each other, and on its own it says almost nothing. A strategy that wins seven times out of ten can still lose money, and one that wins three times out of ten can be very profitable. The number that actually answers "does this make money?" is expectancy.

Measure trades in R

R is the amount you risk on a trade — the distance to the stop, in money. A trade that makes twice the risk is +2R; one that hits the stop is −1R. Measuring in R removes account size and lot size from the picture, so trades of different sizes can be compared directly.

The expectancy formula

Expectancy (R) = win rate × average win (R) − loss rate × average loss (R)

Example: you win 40% of trades, the average winner is 2R, and the average loser is 1R.

Expectancy = 0.40 × 2 − 0.60 × 1 = 0.80 − 0.60 = +0.20R per trade

If you risk $50 per trade, you make on average $10 per trade. Over 100 trades, that is about $1,000 — even though you lost 60 of them.

Why a high win rate can still lose

Take a strategy that wins 70% of the time, but cuts winners at 0.5R and lets losers run to the full 1R:

Expectancy = 0.70 × 0.5 − 0.30 × 1 = 0.35 − 0.30 = +0.05R

That is barely positive before costs. Add spread and commission and it can easily turn negative. High win rates often come from taking profits too early and holding losers too long — the habit feels good and quietly drains the account.

Breakeven win rate for each reward-to-risk

With a fixed reward-to-risk ratio, the win rate needed to break even is:

Breakeven win rate = 1 ÷ (1 + reward-to-risk)

Reward : risk	Breakeven win rate
0.5 : 1	66.7%
1 : 1	50.0%
1.5 : 1	40.0%
2 : 1	33.3%
3 : 1	25.0%

Any win rate above the line is profitable before costs; below it, the strategy loses over time.

Profit factor

Profit factor is another way to express the same idea:

Profit factor = gross profit ÷ gross loss

In the 40% / 2R example, per 100 trades the winners make 40 × 2R = 80R and the losers lose 60 × 1R = 60R, so the profit factor is 80 ÷ 60 = 1.33. Anything above 1 is profitable; most robust strategies sit somewhere around 1.3 to 2.

Include the costs

Calculate expectancy on net results — after spread, commission and swap. On short-term trades with tight stops, costs can be 5–10% of R per trade, which can be most of a small edge. A strategy with +0.05R gross expectancy and 0.08R of costs per trade is a losing strategy.

How many trades you need

Win rate and expectancy are noisy over small samples. Ten trades tell you almost nothing; streaks alone can swing the numbers wildly. Treat results under about 30 trades as anecdotes and aim for 100 or more before drawing firm conclusions — and keep the rules identical across the sample, or you are measuring several strategies at once.

What to record in your journal

• Entry, stop and target prices, and the planned R
• The result in R after costs
• Setup type, pair and session
• Whether you followed your rules

From these four columns you can compute win rate, average win, average loss, expectancy and profit factor for each setup, and drop the ones that do not pay.

Run the numbers

Use the risk/reward calculator to see the reward-to-risk and breakeven win rate of each planned trade, and the position size calculator to keep 1R the same percentage of the account. For setting targets, read the risk/reward ratio explained, and for what a run of losses does to the account, drawdown and recovery.

Key takeaways

• Win rate alone does not tell you whether a strategy makes money.
• Expectancy = win rate × average win − loss rate × average loss, in R.
• Breakeven win rate = 1 ÷ (1 + reward-to-risk): 50% at 1:1, 33% at 2:1.
• Calculate on net results after costs; small edges disappear quickly.
• Trust the numbers only after 100 or more trades with the same rules.

YenPip calculators are estimation tools, not financial advice. Past performance and backtests do not guarantee future results.