Evidence Trading
The psychology of trading · Chapter 7 of 9

Win rate tells you almost nothing

Foundation3 min read · part of The psychology of trading

Ask a trader how their method is doing and most will answer with a win rate. It is the least informative number they could have picked, and the habit costs people working strategies.

A win rate on its own cannot be good or bad, because it says nothing about the size of the wins and losses. A method that wins 30% of the time and makes four times its risk when it wins is excellent. A method that wins 80% of the time and occasionally gives back ten times its risk is a slow way to lose everything. Both are common, and the second one feels far better while it is running.

The number that actually decides is expectancy: what one trade is worth on average, counting both outcomes. Multiply the win rate by the average win, subtract the loss rate times the average loss. If that is positive, the method makes money over enough trades. If it is negative, no amount of discipline makes it profitable — discipline applied to a negative edge just loses money more consistently.

This matters psychologically more than mathematically. A high win rate is emotionally comfortable: you are right most days. That comfort is exactly why methods with poor payoff ratios survive in people's accounts far longer than they should, and why methods that are right three times in ten get abandoned in week two despite being better.

The practical habit: when you judge a method, quote two numbers or none. Win rate alone is not a claim about anything.

What to take away

  • Win rate says nothing without the average win and average loss beside it.
  • Expectancy — win rate × average win minus loss rate × average loss — is what decides.
  • A high win rate is emotionally comfortable, which keeps bad payoff ratios alive.
  • Discipline applied to a negative edge loses money more consistently, not less.

This chapter, measured against your own trades

In the app the same chapter ends in your figures rather than an example: how often you did the thing it describes, over your last ninety days. You pick one change to make, and Evidence checks afterwards whether it actually changed — from your journal, arithmetic, no opinion involved. Questions you get wrong come back a week later and again a month after that.

Open the free plan →

Check that it stuck

Answers shown — in the app these are asked before you see them, and the ones you get wrong come back after a week.

Method A wins 35% with a 3:1 payoff. Method B wins 75% with a 1:4 payoff. Which has a positive expectancy?
A only — A returns 0.35×3 − 0.65×1 = +0.40 per unit risked. B returns 0.75×1 − 0.25×4 = −0.25. B feels much better to trade and loses money.
Why do methods with poor payoff ratios survive longer than they should in real accounts?
Being right often is emotionally comfortable, so the ratio goes unexamined — The comfort of frequent small wins is the mechanism. It is also why a method that is right three times in ten gets abandoned early despite being the better one.
A trader says "my strategy is 68% accurate". What is missing?
The average win and average loss — Sample size matters too, but without the payoff ratio the accuracy figure cannot be turned into an expectancy — so it is not yet a claim about profitability at all.
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