The Win Rate (% Win) of a trading strategy is the percentage of profitable trades for a given backtesting run.  I calculate this as:

%Wins = Number of wins divided by total number of trades 

Extra Insight:

• Win rate is about the only metric to compare entry strategies before you’ve selected an exit strategy.
• Win rate is also a good metric to gauge if you can stick to the system or get too demoralized by low win rates.
• You can’t exactly determine the loss rate from the win rate because a trade may break even which is, technically speaking, not a loss.  For comparison purposes however, it is enough to know the win rate, the expectancy, and the standard deviation.
• For a trading system, the win rate is the probability of a winning trade.  It is NOT the probability of profitability.   For that, calculate expectancy because the size of the wins vs losses matters.  A lot.   For example, a profitable trading system may win less than 50% of the time if the wins are bigger than losses.    Likewise, its certainly possible to lose money on a system with an extremely high win rate when that one big monster loss comes along to wipe out all previous gains.

Last updated 11/10/08.

Tags: backtesting, Glossary, win rate