Why a High Win Rate Can Be Misleading

A high win rate doesn't automatically mean a profitable strategy.

Imagine a strategy wins eight out of ten trades but earns $50 on each winner and loses $250 on each losing trade.

The result is:

Eight winners: $400
Two losers: $500
Net result: -$100 before costs.

Now consider a strategy with a lower win rate but a larger average win relative to its average loss.

The second strategy could be more profitable despite winning less frequently.

This is why I pay attention to expectancy, average win, average loss, and trading costs.

A win rate is only one part of the picture.

The goal is to understand the complete distribution of results rather than judging a strategy by one attractive statistic.