Payoff Ratio
a.k.a. Average win to average loss
Your average winning trade divided by your average losing trade.
The payoff ratio tells you how big your wins are compared with your losses. If your average winner makes 150 and your average loser costs 100, your payoff ratio is 1.5.
On its own it means nothing; it has to be read alongside your win rate. A 3:1 payoff ratio is great, unless you only win 15% of the time. Put the two together and you get your expectancy: whether your strategy actually makes money over many trades.
Payoff ratio meets win rate
- Average win: 120. Average loss: 80. Payoff ratio = 120 ÷ 80 = 1.5.
- You win 45% of trades.
- Per 100 trades: 45 × 120 = 5,400 won, 55 × 80 = 4,400 lost.
Bottom line: Net +1,000 over 100 trades. Profitable, despite losing more often than winning.
Keep this word for good
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