A win/loss ratio measures how often trades result in wins versus losses. So instead of taking into account how much was gained or lost, it merely concentrates on counting the winners and losers.
It is mostly used in trading to identify closed and unclosed deals; it does not take into account deals that are still pending or in the pipeline. The formulae for win/lose ratio is – wins/losses.
Where: Wins refers to the number of profitable trades over the specified period
Losses refer to the number of unprofitable trades over the specified period.
A popular trading metric used by traders to assess the success of their stock selection is the win/loss ratio. A trading strategy may or may not be effective if it achieves a high win/loss ratio. When the win/loss ratio is greater than 1, at least half of the deals are considered successful.
How to Interpret the Win/Loss Ratio – An overview
The win/loss ratio is only used to calculate the ratio of profitable transactions to losing trades over a certain time period. The key points of win/loss ratio are-
= 1.0 is regarded as neutral. It shows that 50% of the deals that were made were profitable.
> 1.0 is considered positive. It means that the trader made more profitable deals than losing ones.
1.0 is not thought well of. It shows that the trader made more losing deals than winning ones.
The win/loss ratio may be used to calculate a trader's success rate, but it has one significant flaw: it ignores the real monetary value of each deal.