Average Win and Average Loss
Average win and average loss are the mean profit of winning trades and the mean loss of losing trades; combined with win rate they determine expectancy.
Win rate tells you how often you win; average win and average loss tell you how much. Together they decide whether a strategy makes money. A trader who wins 70% of the time can still lose if the average loss is three times the average win, while a trader who wins only 35% can do well if winners are large. This entry explains how to calculate both numbers, the payoff ratio that links them, and how they reveal problems in trade management.
- Reading time
- 4 min
- Also called
- Average win, Average loss, Payoff ratio
- Updated
Average win and loss in plain words
Add up all winning trades and divide by the number of winners: that is your average win. Do the same for losers to get the average loss. Dividing one by the other gives the payoff ratio.
What matters is how much you make when you are right and how much you lose when you are wrong, not just how often you are right.1 Win rate, average win and average loss together give your expectancy.2 See Expectancy.
How to calculate them, step by step
Separate winners and losers
Use closed trades only, after costs. See Profit and Loss.
Average win
Total profit on winners ÷ number of winners.
Average loss
Total loss on losers ÷ number of losers.
Payoff ratio
Average win ÷ average loss.
Express in R
Dividing by your risk per trade makes results comparable. See R-Multiple.
Combine with win rate
Expectancy = win rate × average win − loss rate × average loss. See Win Rate.
Worked examples
Example 1 — The calculation
Positive20 trades: 8 winners totalling $2,400, 12 losers totalling $1,800.
| Average win | $2,400 ÷ 8 = $300 |
| Average loss | $1,800 ÷ 12 = $150 |
| Payoff ratio | 2.0 |
With a 40% win rate and a 2.0 payoff, expectancy is positive: 0.4 × 300 − 0.6 × 150 = +$30 per trade.
Example 2 — High win rate, still losing
NegativeA trader wins 70% of trades, with an average win of $100 and an average loss of $300.
| Expectancy | 0.7 × 100 − 0.3 × 300 = −$20 |
A high win rate cannot save a strategy whose losses are much bigger than its wins.
Example 3 — Spotting a management problem
LeakA strategy is designed for 2R targets and 1R stops, but the journal shows average win 1.1R and average loss 1.4R.
| Planned payoff | 2.0 |
| Actual payoff | 0.79 |
Winners are cut early and losers run past the stop — a classic sign of loss aversion. See Loss Aversion.
Win rate and payoff ratio needed to break even (before costs)
| Aspect | Payoff ratio | Break-even win rate |
|---|---|---|
| Low payoff | 0.5 | ≈ 67% |
| Even | 1.0 | 50% |
| Typical trend strategy | 2.0 | ≈ 33% |
| High payoff | 3.0 | 25% |
How traders use these numbers
Judging a strategy
Payoff and win rate together reveal the edge. See Trading Edge.
Finding leaks
Comparing planned vs. actual payoff. See Trade Management.
Setting targets
Choosing targets that keep the payoff ratio healthy. See Risk-to-Reward Ratio.
Journal reviews
Tracking the numbers over time. See Trading Journal.
Advantages and disadvantages
Advantages
- Simple to calculate from any trade record.
- Shows the size side of results that win rate misses.
- Reveals exit problems quickly.
Disadvantages
- Averages can be distorted by one huge trade.
- Needs a reasonable number of trades to be meaningful.
- Says nothing about the order of wins and losses (drawdowns).
Going deeper
Read as far as you need. Each level builds on the one before it.
Both numbers matter
Beginner
A strategy can work with a low win rate and big winners, or a high win rate and small losers. What fails is a low win rate with small winners.
Use medians as a check
Intermediate
If one exceptional trade dominates the average win, look at the median win too. A strategy that depends on rare outliers needs a larger sample to judge. See Sample Size and Statistical Significance.
Payoff ratio vs. profit factor
Advanced
Profit factor combines payoff and win rate in one number: (win rate × average win) ÷ (loss rate × average loss). See Profit Factor.
Common mistakes
Judging by win rate alone
Always look at average win and loss too.
Ignoring costs
Use net results.
Mixing position sizes
Use R to compare trades of different sizes.
Too few trades
Small samples give unstable averages.
Check your understanding
Test yourself before moving on. Each answer comes with an explanation.
Key points to remember
- Average win and average loss measure the size of results.
- Payoff ratio = average win ÷ average loss.
- Together with win rate they give expectancy.
- A high win rate can still lose money.
- Planned vs. actual payoff reveals management leaks.
Frequently asked questions
What is a good payoff ratio?
Should I calculate in dollars or in R?
How many trades do I need?
Further learning
- Expectancy
Where these numbers come together.
- Win Rate
The other half of the picture.
- Profit Factor
A single-number summary.
- Loss Aversion
The usual cause of a poor payoff ratio.
Sources
This article is written in our own words. The sources below support the specific facts, rules and figures marked with a number in the text. Links open the original publisher’s page.
- CME Group. Misconceptions of Taking Losses (opens in a new tab) Checked .
- CME Group. The Mathematics of Trading Success (opens in a new tab) Checked .
Read more elsewhere
- Trading Metrics (our sister site): Average Win (opens in a new tab)
Educational content, not financial advice. Examples use hypothetical prices and simplified costs; actual fees, margin rules and regulations vary by broker, market and country. Trading Metrics is our sister site, under the same ownership; we are not affiliated with any other publisher linked above. Last reviewed . Report an error or request a source credit.