# Win% & Risk-Reward Ratio

## The Twin Pillars of Day Trading

Consistency in day trading isn’t the result of a magic trick; it’s about dedication, practice, and understanding your performance. Relying solely on your profit and loss (PnL) to gauge your success? Think again. Dive deeper to uncover areas for growth.

# Trade Accuracy and Risk Management: Finding the Balance

Different strokes for different folks rings true, even in day trading.

Here’s a little story to shed light:

John and Steve each take a swing at 10 trades. John comes out on top for 7, pocketing $350, but stumbles on 3, setting him back by $250. After the dust settles, he’s $100 richer.

Steve, with a contrasting approach, secures wins in 3 trades, netting $350, but fumbles on the remaining 7, losing $250. Yet, he too has an extra $100 in his pocket at the day’s end.

John and Steve: two traders, two methods, one outcome.

While John needs a crash course in risk management to curb his hefty losses, Steve’s scorecard reveals he needs to up his accuracy game.

And here’s the kicker: **Their trading styles can be discerned through two metrics: Win% and Risk-Reward Ratio.**

# A Closer Look at Win%

A straightforward metric, Win% is the ratio of successful trades to the total trades made, ignoring those that break even.

- John’s Win% stands tall at 70%.
- Steve’s, however, lingers at a meek 30%.

# Risk-Reward Ratio Unpacked

By taking the average earnings per successful trade and setting it against the average loss from the unsuccessful ones, you get the Risk-Reward Ratio.

- John’s metric? A lowly 0.6.
- Steve’s? A whopping 3.2.

# The Revealing Graph

A curve traced by the formula y = 1/x — 1 can be a trader’s best friend, highlighting areas ripe for improvement.

**Key Takeaways**

**Win%**: Not just a number, it’s the heartbeat of your trading strategy. Representing the percentage of your victories, a high Win% sounds promising. But beware, it doesn’t spell out profitability. Massive losses can eclipse frequent, smaller gains.

**Risk-Reward**: This golden ratio contrasts the average profit from your wins to the losses from your missteps. A higher ratio? It’s the sweet spot where the rewards sweetly overshadow the risks.