One of the biggest misconceptions in trading is:
“A strategy with a higher win rate must be better.”
In reality, that’s not always true.
Many professional traders spend very little time looking at win rate in isolation.
Instead, they focus on a metric called Expectancy.
Because expectancy helps answer one important question:
“On average, how much can I expect to make (or lose) every time I take a trade?”
Consider These Two Strategies
Strategy A
• Win Rate: 90%
• Average Profit: ₹100
• Average Loss: ₹500
Strategy B
• Win Rate: 45%
• Average Profit: ₹500
• Average Loss: ₹100
At first glance, Strategy A looks far more attractive.
After all, winning 9 out of 10 trades feels great.
But there’s a catch.
Just one losing trade can wipe out the profits from many winning trades.
Strategy B loses more often…
Yet when it wins, the gains are significantly larger than the losses.
Over hundreds of trades, that difference can become very meaningful.
What Is Expectancy?
Expectancy measures the average outcome per trade over a large number of trades.
It combines four important factors:
• Win Rate
• Loss Rate
• Average Winning Trade
• Average Losing Trade
Instead of asking:
“How often do I win?”
Expectancy asks:
“Does my strategy have a mathematical edge?”
Why Win Rate Alone Can Be Misleading
Many beginners naturally look for:
• 80% win rate
• 90% accuracy
• Very few losing trades
But a high win rate doesn’t automatically mean a profitable strategy.
A strategy can win frequently…
…and still lose money if the losses are much larger than the wins.
Similarly, some successful trend-following strategies have win rates below 50% but remain profitable because their winning trades are substantially larger than their losing trades.
Think Like An Insurance Company
Insurance companies pay claims every single day.
Some claims are very large.
Yet the insurance business continues to generate profits over long periods.
Why?
Because premiums are priced using probabilities, historical data, and expected outcomes.
Insurance companies don’t expect every customer to make them money.
They expect the entire portfolio of policies to generate a positive outcome over thousands of cases.
Professional traders often think in a similar way.
They don’t judge a strategy by one trade.
Or ten trades.
They evaluate whether it has a positive expectancy over hundreds of trades.Expectancy Changes How You Evaluate Strategies
Instead of asking:
• Which strategy has the highest win rate?
You begin asking:
• Which strategy has the better mathematical edge?
• Which one manages losses more effectively?
• Which one produces better long-term outcomes?
This shift in thinking often changes how traders evaluate backtests.
Returns Don’t Tell The Whole Story
Imagine two backtests:
Strategy A
• CAGR: 24%
Strategy B
• CAGR: 18%
Without additional information, it’s impossible to know which strategy is actually better.
Questions worth asking include:
• Which had lower drawdowns?
• Which had higher expectancy?
• Which required less capital?
• Which was easier to execute consistently?
• Which survived different market conditions?
Higher returns alone don’t always mean a better strategy.
Let’s Discuss
When you evaluate a trading strategy, which metric do you consider most important?
• Win Rate
• Risk-Reward Ratio
• Expectancy
• Drawdown
• Sharpe Ratio
• Something else?
It would be interesting to know how different traders judge whether a strategy truly has an edge.