What if I told you that…
You don’t need a high win rate to succeed.
And yet every group you go to profess an 80% to 90% win rate.
These are scammers that are to be avoided by all means.
And there are a few reasons for this…
First, they are probably basing their results on ONLY their short term winning streak.
Second, they are not taking into account their losses.
Third, they are just making it up to attract ignorant traders to buy a course or follow their Telegram.
Well, I’m here to bust the myth and show you…
Why you don’t need a high win rate to profit as a trader.
Introducing…
The Minimum Win Rate Formula
The Minimum Win rate formula will tell you exactly the minimum win rate
you’ll need with your trading system, to keep your portfolio in the positive.
REMINDER:
A win rate is simply a percentage of the sum of your winning trades divided by the no. of total trades you’ve taken.
e.g. 6 winners ÷ 10 trades = 60% W/R
The beauty about this formula is you’ll need nothing more than your risk to reward ratio to calculate the minimum win rate you’ll need.
The formula is as follows.
The Minimum Win/rate Formula
1 ÷ (1 + R:R)
If you choose a Risk to Reward of 1:1, you’ll risk R1 for every R1 you gain.
Your stop loss and entry level will be at the same distance between your take profit and your entry level.
See below…
So let’s plug the Risk:Reward of 1 into the Minimum Win rate formula.
Minimum Win rate = 1 ÷ (1+ R:R)
= 1 ÷ (1+ 1)
= 50%
This means, with a R:R of 1:1, you’ll need at least a 50% win/rate to keep your portfolio at break even.
Please note: These calculations have excluded trading costs for simplicity purposes.
When the Risk to Reward is 1:2
Now, what if we pumped up the R:R of say 1:2.
This means for every R1 you risk you’ll expect to gain R2 for every trade.
Now we’ll be able to calculate what win rate we’ll need to profit as a trader.
Here’s the Win Rate Expectancy curve again with a R:R of 1:2:
So let’s plug the Risk:Reward of 1:2 into the Minimum Win rate formula.
Minimum Win rate = 1 ÷ (1+ R:R)
= 1 ÷ (1+ 2)
= 33%
This means, with a R:R of 1:2, you’ll need at least a 33% win/rate to keep your portfolio at break even.
So if you have a 40% win rate with a Risk to Reward of 1:2, you know you’re bound to be profitable.
How you can profit with a 16.66% win rate
= 1 ÷ (1 + R:R)
= 1 ÷ (1 + 5)
= 16.66%
What the above curve states is this…
If you have a Risk to Reward of 1:5, even with a 16.66% win rate, you will be profitable as a trader (excluding costs).
And if your win rate is 30% or higher with a 1:5, you pretty much know inevitably you’ll grow your account in the long run…
I hope this has been a major lesson today on why the Win rate is not as important as the Risk to Reward…
Don’t fall for the scams out there and see for yourself how a trading system, strategy or mentor has performed before you act!
What about the MATI Trader System’s win rate?
OK with my system, over the last 20 years (with a Risk to Reward of 1:1.5 to 1:2) it’s shown an overall win rate of 62.5%.
So even if the win rate dropped to 50% or even 40%, I know it will be profitable in the medium to long run.
And that’s why, I have so many Premium Members who are following me with this journey to success and are profiting the right way without any false promises…
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