The formulas
Expectancy = (Win rate × Avg win) − (Loss rate × Avg loss)
Breakeven win rate = 1 ÷ (1 + Reward/Risk)
Profit factor = (Win rate × Avg win) ÷ (Loss rate × Avg loss)Worked example
You win 45% of trades, averaging ₹3,000, and lose 55%, averaging ₹1,500. Expectancy is (0.45 × 3,000) − (0.55 × 1,500) = ₹525 per trade, or 0.35R. Your 1:2 risk-reward only needs a 33.3% win rate to break even, so a 45% win rate gives a solid edge — about ₹52,500 over 100 trades.
Win rate vs risk-reward
| Risk : reward | Breakeven win rate |
|---|---|
| 1 : 0.5 | 66.7% |
| 1 : 1 | 50.0% |
| 1 : 1.5 | 40.0% |
| 1 : 2 | 33.3% |
| 1 : 3 | 25.0% |
| 1 : 4 | 20.0% |
Frequently asked questions
What is a good risk-reward ratio?
There is no single answer — it depends on your win rate. A 1:2 risk-reward only needs a win rate above 33.3% to be profitable, while a 1:1 needs above 50%. Use the breakeven win rate to judge.
What is expectancy?
Expectancy is the average amount you make or lose per trade over many trades: (win rate × average win) − (loss rate × average loss). A positive expectancy means the system makes money in the long run.
What is profit factor?
Gross profit divided by gross loss. Above 1 is profitable; most robust systems sit between 1.3 and 2. Very high values on a small sample usually mean overfitting or luck.
Should I include charges?
Yes. Reduce your average win and increase your average loss by your average charges per trade. For frequent traders, charges often turn a slightly positive expectancy negative.
Results are estimates for educational purposes only and are not investment, tax or financial advice. Verify figures with your broker or advisor before acting on them.