Kardec Trader breaks down the math linking win rate and risk-to-reward ratio. The formula WR = 1 / (1 + R) shows the break-even point: a 1:2 ratio needs 33% wins to profit, while 1:1 needs 50%. You can't optimize one metric alone; profitability comes from the combination.
Don't hate me. But if you're a trader and you're still buying into this whole win rate versus risk to reward feud of the Internet, everything you've heard about it is wrong. Which one is more important? Let's settle it once and for all so you can chill down and trade and execute your edge with confidence. The truth resides in this formula. Win rate equals one over one plus reward. This law is valid in the field of stochastic event, let's call them random events in zero sum games. So if you were to trade completely randomly with a one to one risk to reward ratio on a large enough data sample, your win rate will tend to be 50%. If you were to trade with a 1, 2 risk to reward, you'll tend to have a 33% win rate. If you were to trade with a one to 0.5 risk to reward ratio, you'll tend to have a 66% win rate. And so on and so forth. And this line forms. This is the break even line. That's where random trading tends to bring you trading like an average retail, emotionally and without. A real edge will keep you under this line in the losing area where your profit factor will be below one. So your job as a trader is to stay above the break even line in the profitability area. And here it doesn't matter if you go for a high win rate strategy or or a high risk to reward strategy. The important thing is that the combination between them is profitable and hence gets you a profit factor higher than one. This is just basic math. So statistically speaking, it's not about your win rate or about your risk to reward ratio. It's about the combination between the two. Now here comes the crucial point. So if you're an algorithmic trader or a manual trader, but very mechanical and rule based, you honestly shouldn't care at all. Because your edge is statistical and mathematical and your edge will do all the work if instead you choose the path of becoming a discretionary trader. So learning how to build a market narrative and enter the flow of one one specific instrument through implicit learnings and countless hours spent in front of the screen actively correcting mistakes to build a strong and at the same time dynamic subjective probability, there could be a good argument for which having a low win rate will be harder on your psychology. Because you'll lose a lot of trades, very likely 10, even 20 losing trades in a row waiting for the one to seven home run. That's not easy on the mind. It can be very stressful. But at the same time just going for a high win rate and have a low risk to reward ratio, you might see two or three trades eating the whole profit of your previous 10 trades. So that's also tough. So of course the easy answer will be just have a high win rate and a high risk to reward ratio. But in the end, it all depends on your psychological profile, your personal tendencies, and you should take time to test both approaches and see what brings you the best results in the long run.
