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The Math of Profitability

Why Risk Management Matters More Than Win Rate

Account Settings

Risking $100 to make $200 (1:2)

Scenario A: The 1:2 Risk Reward System

Assuming you risk 1 unit to make 2 units. See how low your win rate can be.

30% Win Rate
$-1,000
Losing
35% Win Rate
+$500
Profitable
40% Win Rate
+$2,000
Profitable
50% Win Rate
+$5,000
Profitable
60% Win Rate
+$8,000
Profitable

Key Takeaways:

  • At 30% win rate, you lose money slowly.
  • At 33-35% win rate, you are effectively Break Even.
  • At 40% win rate, you are Profitable.
  • At 60% win rate, you are performing like a top hedge fund.

Scenario B: The High Win Rate Trap

Comparison: A 60% Win Rate trader with good vs. bad risk management.

1 :

60% WR (1:2 R:R)

+$8,000

Result after 100 trades

60% WR (1:0.5 R:R)

$-1,000

Result after 100 trades

Notice how the trader on the right wins 60% of the time (mostly green days!), but because they risk $100 to make $50 (cutting winners early or holding losers too long), they end up with $-1000.