Trading win rate

You may have heard of “win rate“ percentage.

Win rate = (Number of winning trades ÷ Total number of trades) × 100

If you have far more profitable trades than losing trades, you would have a high win rate.

Trader Alan made 20 trades last week.
15 ended in profit. 5 in losses.
Alan has a win rate of 75 percent.

Trader Frank made 20 trades in the same week.
7 ended in profit. 13 in losses.
Frank has a win rate of 35 percent.

But it is possible to lose money with a high win rate. Here’s how:

Trader Mike (my old trading buddy):
Made 20 trades last month
16 winners: +$200 each (+$3,200)
4 losers: -$1,000 each (-$4,000)
Win rate: 16 ÷ 20 = 80%
Net result: -$800

Mike won 8 out of 10 trades. Still losing money.

I was like this other trader in my inconsistent trading years:
Trading stocks
100 trades
80 winners: +$300 each (+$24,000)
20 losers: -$2,000 each (-$40,000)
Win rate: 80 ÷ 100 = 80%
Net result: -$16,000 “But my win rate is so good!”
Yeah, and my account was dead.

Here’s an even better example:
Remember those penny stock traders?
Monday: +$100
Tuesday: +$100
Wednesday: +$100
Thursday: +$100
Friday: -$1,000
Win rate: 4 ÷ 5 = 80%
Bank account: Still crying

It’s like playing Russian roulette. You can win 5 times in a row. That one loss though? Game over.

This is why casino games are designed this way:
You win small often.
Feels good.
Keep playing.
Then one big loss.
House always wins.

Real trading isn’t about win rate.

In trading:
Profits tell you what happened.
Everything else tells you what will happen next.