Every ratio implies a win rate
The common claim that "higher is better" is half true. Raising the target necessarily lowers the win rate, because price must travel further before reversing. The right question is not "what is the highest ratio?" but "does my actual win rate beat the threshold this ratio imposes?"
The minimum is computed directly: 1 ÷ (1 + ratio).
- 1:1 → needs more than 50%.
- 1:2 → needs more than 33.3%.
- 1:3 → needs more than 25%.
That is before costs. Add spread, slippage and swap and the real threshold rises. Test your own numbers in the strategy viability assistant.
Planned ratio versus realised ratio
A frequently neglected distinction: the ratio you wrote before entry is not the ratio you achieved. Exiting early out of fear shrinks the reward while leaving risk intact, turning a planned 1:3 into an effective 1:1.
This explains why traders find a strategy "does not work" despite a sound ratio on paper: the executed ratio differs from the planned one. Measuring the realised ratio from your actual trade record is the only way to know which one you are really trading.
Where this number sits among performance measures
Three numbers describe any strategy completely: win rate, risk-to-reward, and the expectancy that combines them. None of them means anything alone.
The reference record for this family: 100 trades, 40 winners averaging +2R and 60 losers averaging −1R. A win rate of 40% looks weak on its own, yet expectancy is positive at +0.20R per trade. Drawdown is the price you pay to reach that expectancy, and it decides whether you are still trading when it arrives.
The formula
Breakeven win rate = 1 ÷ (1 + reward-to-risk ratio)
A worked example
In the reference record: 100 trades at 1:2, meaning 40 winners at +2R and 60 losers at −1R. The breakeven threshold at 1:2 is 33.3%, and the actual win rate is 40% — comfortably above it.
Drop the win rate to 30% at the same ratio and the system loses money despite the ratio "being good". The reverse also holds: 1:1 with a win rate of 60% is profitable. Neither number means anything alone — the meaning is in the expectancy that combines them.
Common mistakes with this term
- Chasing high ratios without measuring the effect on win rate, which drops below the breakeven threshold.
- Computing the threshold without costs, when spread, slippage and swap raise it in practice.
- Trusting the planned ratio while ignoring the ratio actually realised in the trade record.