Payoff Ratio
Also known as: reward-to-risk ratio, win/loss ratio (size), average win / average loss
The payoff ratio is the average size of a winning trade divided by the average size of a losing trade, and it is the single most direct measure of whether a trader is letting winners run and cutting losses short.
Payoff ratio is the math behind the proverb. A payoff of 2.0 means the average winner is twice the size of the average loser; a payoff of 0.7 means the average winner is smaller than the average loser. Combined with the win rate, the payoff ratio determines a strategy's expectancy directly: expectancy = (win_rate × avg_winner) − (loss_rate × avg_loser).
Payoff is most useful as a check on win-rate intuition. A trader with a 65 percent win rate but a 0.6 payoff ratio is running a small-wins / big-losses pattern that turns negative the moment a normal losing streak appears. A trader with a 40 percent win rate and a 2.5 payoff ratio is running an asymmetric trend-following book whose drawdowns feel bad but whose expectancy is positive. The two traders look very different on payoff and very different in long-run survivorship.
Improving payoff is usually about exit discipline, not entry quality. Honor the stops to keep average losers in check; honor the targets and trailing stops to keep average winners running. Both are behaviors, both are measurable.
Average winning trade dollar amount ÷ average losing trade dollar amount across the sample.
Shown on the Win/Loss Breakdown widget; an input to expectancy on the diagnosis.
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