Win/Loss Ratio
Definition
The win/loss ratio is the average winning trade size divided by the average losing trade size. A ratio of 2.0 means winners are on average twice the size of losers. Combined with win rate, it determines whether a strategy is profitable: expectancy = (winRate × avgWin) − (lossRate × avgLoss).
Formula
WLR = \frac{\overline{\text{Win}}}{|\overline{\text{Loss}}|}WLR = average winning trade / |average losing trade|
In-depth: Win/Loss Ratio
The win/loss ratio is a single-number summary of a strategy's reward profile. It answers: when this strategy is right, how large are the wins relative to losses?
Formal definition: WLR = (sum of profits from winning trades ÷ number of winning trades) ÷ (sum of losses from losing trades ÷ number of losing trades), with both values as absolute amounts.
Typical bands by strategy class: - Scalpers: 0.5-1.5 (small wins, sometimes larger losses; compensated by high win rate) - Mean-reversion: 0.8-1.5 (similar profile to scalping) - Trend-following: 1.5-4.0 (smaller-frequency wins, often larger than losses) - Breakout: 1.2-2.5 (wide stops outside the range mean larger losses; winners depend on continuation strength) - Grid (high-risk): often looks like 5-10+ on the surface because grid recovery converts small unrealised losses into small recovery profits, but the rare 'failure' loss is catastrophic — distorting the ratio
Combined with win rate: a strategy with 50% win rate and 2.0 win/loss ratio is profitable; a strategy with 30% win rate needs 2.5+ win/loss ratio to be profitable; a strategy with 70% win rate can be profitable at 0.5 win/loss ratio.
The expectancy formula formalises this: E = (P_win × avgWin) − (P_loss × avgLoss). Win/loss ratio is just the ratio of avgWin to avgLoss; combined with win rate, it determines expectancy directly.
Common error: comparing win/loss ratios across strategy classes without context. A 0.8 win/loss for a scalper might be excellent (if win rate is 70%); the same 0.8 for a trend-follower indicates a broken strategy (would need win rate > 55% to be profitable, but trend-following inherently has lower win rate).