Why a High Ratio Does Not Guarantee a Good Trade?

Consider a hypothetical trader using a 1:2 ratio (risking $100 to potentially gain $200) — a ratio that might sound attractive on its own. As covered in the earlier lesson, the mathematical breakeven win rate for this ratio is approximately 33.3%.

If this hypothetical trader's actual win rate were only 30% — below that breakeven threshold — the strategy would produce a net loss over time, despite the seemingly favourable 1:2 ratio, illustrating that ratio alone does not determine profitability.

A risk-to-reward ratio only describes the relationship between a single potential win and a single potential loss — it says nothing about how often wins versus losses actually occur. A strategy can have an excellent ratio and still be unprofitable if its actual win rate falls short of what that ratio mathematically requires to break even.

Similarly, a strategy with a seemingly less impressive ratio (such as 1:1) can still be profitable if its win rate is sufficiently high above the 50% breakeven threshold discussed in the earlier lesson. Ratio and win rate need to be considered together, not evaluated as if either one alone tells the complete story.