I’ve been thinking lately: why do so many people lose money when trading? The real issue is often not the win rate, but the risk-reward ratio.

Let’s make it clear what the risk-reward ratio is—it's the relationship between how much you make when you’re profitable and how much you lose when you’re not. It sounds simple, but not many people truly understand it.

Suppose you have 100 in your wallet, and you only take out 10% each time to trade—that’s 10. Now the problem is this: if your win rate is only 50% and the risk-reward ratio is 1:1 (you make 10 when you win and lose 10 when you lose), then after 10 trades—winning 5 times and losing 5 times—the result is break-even. But once you factor in transaction fees and funding costs, you start losing money.

That’s why the risk-reward ratio is so crucial. When your risk-reward ratio improves to 1:1.5, you only need a 40% win rate to start making money. If you can reach a 1:2 risk-reward ratio, then a 40% win rate is enough to be consistently profitable without losing. An even more extreme example is a 1:5 risk-reward ratio—you only need a 20% win rate, which is even lower than what you’d need to flip a coin.

I’ve seen a student with a 71% win rate paired with a 1:1.5 risk-reward ratio, and after more than ten days they still weren’t up or down. This shows that a high win rate doesn’t necessarily mean you’re making money—the risk-reward ratio is the decisive factor.

What’s a common mistake many beginners make? They look at themselves having 100% win rate for several days and think they’re invincible. But what’s the truth? They’re taking too few trades. If you only do 4 trades a week, of course your win rate looks high. But if you take that seriously and increase your trading frequency and position size, then the risk comes in. I’ve seen too many people make money steadily, and then—on a single leveraged trade—they get liquidated and give everything back.

On the other hand, some people think their win rate is too low, so they place dozens or even hundreds of trades a day and jump in whenever they see a signal. In that situation, no matter how good the risk-reward ratio is, it can’t save you, because your sample size is too large—your true win rate will gradually reveal itself.

So my advice is: before entering a trade, decide in advance how much you’re willing to lose. For example, decide you will lose 10, and then see whether the market can give you a chance to make 15 or 20. If it can, then that trade is worth taking. If it can’t, then walk away.

If you keep a long-term record of every trade, you’ll know your real win rate and risk-reward ratio. Once you know why you’ve been losing money, you’ll also know what kind of trades you’re best at. Some people are suited for range trading, some for trend trading, and some for pullback trades. Find your style, and your risk-reward ratio will naturally improve.

I suggest you save this table. Calculate it yourself, and you’ll understand why the risk-reward ratio matters more than the win rate.