Why a high success rate may not mean high profits

Many traders believe that a high success rate is the key to profit. But the reality is more complex. Let's say you have an 80% success rate – out of 10 trades, 8 are successful. It may seem impressive, right? However, if your average profits hover around 100 CZK but your losses end up at 1000 CZK, suddenly this statistic won't help you.

What is the success rate and why calculate it

In practice, it is a simple ratio – the number of winning transactions divided by the total number of all trades. If you have 12 profitable out of 20 trades, your success rate is 60%. This number gives you the first insight into how often your decisions turn out to be correct.

However, don't forget – this is just one of two important indicators. The second is the profit and loss ratio. In the example above, where you have 12 profitable and 8 losing trades, your ratio will be 1.5 (12 divided by 8). This number says more about the actual profitability than just the success rate.

Where Traders Go Wrong

The most common mistake? Believing that high percentages equate to high profits. Someone sets their stop-loss too far from the entry position. As a result, several small gains can be eliminated by one larger loss. The outcome – successful trades lose their meaning.

Profitability depends on the combination of three factors: your success rate, the average profit per winning trade, and the average loss per losing trade.

How to Use It in Practice

If you find that your success rate is 70%, you do not need to aim for a profit on every trade. A lower risk-reward ratio – like 1:1 – is sufficient, and you can still be profitable.

On the contrary, a trader with a 40% success rate needs a significantly better ratio to reach the break-even point. For example, 2:1 or higher. This means that their average profit must be at least double the average loss.

Those who prefer more conservative strategies with a high success rate can focus on trades with lower risk and modestly, but steadily, growing capital. It is about finding your personal trading style that aligns with your risk tolerance.