The core logic of trading profits: the balance between win rate and risk-reward ratio

In the cryptocurrency trading market, many people have encountered this confusion: why do I see the correct trend multiple times, yet my account remains in loss? Why do I make over ten wins, but a single mistake wipes out all the profits?

The key to the answer lies in the combination of two core indicators: win rate and risk-reward ratio.

Some believe in “many small wins,” pursuing high win rates in their trading approach. They focus on short-term fluctuations, taking profits quickly and relying on frequent small gains to accumulate returns, enjoying the positive feedback of “winning often.” Others prefer “fewer but bigger wins,” accepting a lower win rate and focusing on major market moves, aiming for a 3x or 5x risk-reward ratio per trade, regardless of only two or three wins out of ten trades.

Neither of these approaches is inherently better or worse, but one fundamental rule must be followed: risk-reward ratio × win rate > 1. This is the starting point for long-term profitability and the lifeline of trading strategies.

Here's a simple example: if your trading strategy achieves a 2:1 risk-reward ratio (earning enough on one trade to cover two losses), then a win rate above 33% is enough to break even; once the win rate exceeds 40%, the strategy can steadily outperform the market. Conversely, if you can achieve a 70% win rate, even with a risk-reward ratio of only 1.5:1, you can still be profitable.

We are not market “gods,” and it’s difficult to achieve both high win rate and high risk-reward ratio simultaneously. But as long as the combination of the two crosses the breakeven point, you can escape the cycle of “winning and losing, ending up empty-handed.”

Many traders stumble because they fail to clarify their strategy logic: using a high win rate short-term approach but holding onto positions expecting a big move, only to accumulate small losses into large ones; or expecting to make big money but panicking and exiting at the first sign of small fluctuations, missing out on the trend.

Next time you formulate a trading plan, ask yourself: is this trade based on a high win rate or a high risk-reward ratio?

Clarify this question first, then decide on entry points, take-profit, and stop-loss levels. Only then can trading shift from “guesswork” to “rule-based.”