What this game teaches
New traders often judge a strategy by how often it wins. But a strategy that wins 80% of the time can lose money, and one that wins 30% of the time can be very profitable. What matters is the combination of win rate, the size of wins compared with losses, and costs. That combination is the expectancy: the average result per trade.
A strategy that wins 40% of the time with wins twice the size of losses has an expectancy of 0.4 × 2 − 0.6 × 1 = +0.2R before costs: on average, each trade earns a fifth of the amount risked. Subtract costs of 0.05R and it is +0.15R.
Break-even win rates
For any reward-to-risk ratio, there is a win rate below which the strategy loses money:
| Reward : risk | Break-even win rate, no costs | With costs of 10% of risk |
|---|---|---|
| 1 : 0.5 | 66.7% | 73.3% |
| 1 : 1 | 50.0% | 55.0% |
| 1 : 1.5 | 40.0% | 44.0% |
| 1 : 2 | 33.3% | 36.7% |
| 1 : 3 | 25.0% | 27.5% |
| 1 : 4 | 20.0% | 22.0% |
Notice how costs move the bar. Strategies with small targets, such as scalping or selling far out-of-the-money options, need very high win rates and are the most sensitive to brokerage, taxes and slippage.
Why 30 traders get 30 different results
The chart runs the same strategy 30 times with different random sequences of wins and losses. Even with a genuine edge, some traders end up behind after hundreds of trades, purely through luck. With a negative expectancy, a few still get lucky for a while, which is why short track records prove very little. SEBI's studies, which found that about nine in ten individual F&O traders lose money, describe the long-run result once costs are included; see what SEBI's data shows.
Frequently asked questions
What is a good win rate for trading?
There is no good win rate on its own. A 35% win rate is fine with wins three times the size of losses; an 85% win rate can lose money if the losses are ten times the wins. Always look at win rate and payoff together, after costs.
Where do I get these numbers for my own trading?
From your trade journal: count winning and losing trades, average the rupee size of each, and include all charges. Fifty or more trades give a rough picture; a few hundred, a better one.
Why do option sellers have high win rates?
Selling options that expire worthless most of the time produces many small wins, but occasional large moves cause big losses. The win rate looks great until the loss arrives, which is why their reward-to-risk is usually well below 1.
Related reading
- Position sizing and risk of ruin
- Backtesting without fooling yourself
- Biased coin challenge
- Risk of ruin simulator
This game uses simulated prices and random outcomes for learning. It is not a trading platform, uses no real money and does not predict real markets. Everything runs in your browser; nothing you enter is sent to us. Read our disclaimer. Built and checked by Pradeep Rawal.