Ticker&TapeMeasuring your trading performance
Feelings are a poor guide to how well you trade. A few simple numbers tell you whether your method has an edge, where it leaks money, and whether all the effort beats just owning an index.
Win rate, average win and average loss
The trading journal lesson introduced these numbers. Here is how they fit together. Win rate is the share of closed trades that made money. Average win is the typical profit on winning trades, and average loss is the typical loss on losing trades, in dollars or percent.
Win rate alone says very little. A trader who wins 80% of the time can still lose money if the losses are huge, and a trader who wins 35% of the time can do very well if the wins are large. What matters is how the pieces combine.
Payoff ratio and expectancy
The payoff ratio is the average win divided by the average loss. A payoff of 2 means a typical winner earns twice what a typical loser costs. Expectancy combines everything into one number, the average amount you make or lose per trade:
- Expectancy = (win rate × average win) − (loss rate × average loss)
- Example: 20 closed trades, 8 winners averaging +$900 and 12 losers averaging −$350.
- Win rate = 8 ÷ 20 = 40%. Loss rate = 60%. Payoff ratio = $900 ÷ $350 ≈ 2.6.
- Expectancy = (0.40 × $900) − (0.60 × $350) = $360 − $210 = +$150 per trade.
- Even though most trades lost, the method made about $150 on average per trade.
Compare against the S&P 500
A positive result is not the full story. If your account rose 8% in a year when the S&P 500 rose 15%, you would have done better simply owning an index fund, with far less work and stress. Compare your return with the index over the same period, and look at your biggest drawdown next to the index's. Beating the market with smaller drops is excellent. Trailing it with bigger drops is a sign to change something.
Be patient with the sample. Twenty trades can be luck in either direction. Results start to mean something after 50 to 100 trades, ideally across different market conditions.
Review every month
On top of your weekly trade review, take an hour each month to look at the numbers. Has the win rate or payoff changed? Is your average loss creeping above your planned stop, which means you are not respecting it? Group trades by setup, by market condition or by holding time, and you may find that one type of trade carries all the profit while another drags it down. Do more of the first and drop the second.
Your Portfolio calculates the stats for you as you close trades, including win rate, average gain and loss, and P&L, and the trade journal keeps your notes next to each position. To trade ideas with other traders, share your setups in the Community. Use it to learn, not to compete: your goal is a positive expectancy you can repeat.
Performance numbers at a glance
| Win rate | Winning trades ÷ all closed trades |
|---|---|
| Payoff ratio | Average win ÷ average loss |
| Expectancy | (Win rate × avg win) − (loss rate × avg loss) |
| Benchmark | The S&P 500 over the same period |
| Meaningful sample | Roughly 50 to 100 trades |
Common mistakes
- Judging the method by win rate alone.
- Drawing conclusions from ten trades.
- Celebrating a positive year that still trailed the index by a lot.
- Looking at the stats only when things go badly.
Key points
- Win rate only matters together with the size of wins and losses.
- Expectancy tells you the average result per trade; it must be positive.
- Compare with the S&P 500 and review your numbers every month.
Check what you learned
Answer at least 2 of 3 correctly to complete the lesson.
1. A trader wins 40% of trades, with an average win of $600 and an average loss of $200. What is the expectancy?
(0.40 × $600) − (0.60 × $200) = $240 − $120 = +$120 per trade.
2. Why is a high win rate not enough to show a method works?
Profitability depends on how win rate combines with the size of wins and losses, which expectancy captures.
3. Your account rose 6% this year; the S&P 500 rose 14%. What does that tell you?
Comparing with the index shows whether your active effort adds value over a simple passive alternative.
See your Portfolio stats → Try it on Ticker&Tape