Inverse correlation of R:R and WR.
Odds are, your win rate will gravitate toward around 50%, no matter what strategy you use, due to the inverse relationship between risk-to-reward (R:R) ratios and win rates. Think of it this way: the R:R ratio determines how much you're willing to risk for a given reward, and that choice directly impacts your probability of winning.
Let’s break it down into something more visual. Picture a pie chart to represent different risk-to-reward ratios and their associated win rates:
- For a 1:1 R:R ratio, you essentially have two “pieces” of the pie, with a 50% chance of hitting your target on any given trade. You’re risking as much as you aim to gain, making it a balanced 50% win rate scenario.
- For a 1:2 R:R ratio, where you aim to gain twice what you’re risking, the pie now has three “pieces.” Your win rate drops to roughly 33%, as you’re aiming for a higher reward, which is naturally harder to hit consistently.
- Conversely, a 2:1 R:R ratio, where you’re risking twice as much as you hope to gain, would give you a win rate closer to 66%, as each trade is easier to win, but the reward is smaller. Many consider this a “bad” R:R because losses can erase more significant portions of your gains.
But here’s where most traders get tripped up: