Why you can be wrong most of the time and win
Win rate isn't the score
A trader who wins 40% of the time can be far more profitable than one who wins 70%. What matters is how big the wins are relative to the losses.
The ratio
Risk $100 to make $300 and you only need to be right one time in four to break even. Risk $300 to make $100 and you need to be right three times in four just to stand still.
This is why stop-losses and targets pair up
Setting both defines your ratio before you enter. Without them you tend to cut winners early and let losers run — exactly backwards.
Check yourself
You risk $100 per trade to make $300, and you win only 3 times in 10. Are you profitable?
- No, you lose more often than you win
- Yes — $900 won against $700 lost
- You break exactly even
Show the answer
Yes — $900 won against $700 lost — Three wins at $300 is $900. Seven losses at $100 is $700. Being right less than a third of the time still nets $200.