Lately I've been thinking about a question: why can some traders consistently make profits, while most people lose money? I found that the answer isn't about having a high win rate, but about the risk-reward ratio.

Many people mistakenly believe that to make money, they need a win rate of over 80%, but that's actually a trap. Let me do some calculations for you. Suppose you invest $10 each time, and if your risk-reward ratio is 1:1, then even with a 60% win rate, you can start making a profit. But if you can increase your risk-reward ratio to 1:2, then a win rate of only 40% is enough. That’s why the risk-reward ratio is more critical than the win rate.

I've seen many beginners make this mistake. They trade for several days in a row, all with profits, and then think they've found the winning strategy. In reality, this is just because they haven't traded enough times. When you only make one or two trades, a 100% win rate is easy to achieve, but that doesn't reflect your true skill. Once you increase your trading frequency, the truth will surface.

Conversely, some people have very low win rates, making dozens or even hundreds of trades in a day. They enter trades just based on signals, even knowing the market is uncertain, still taking risks. In this situation, no matter how high your risk-reward ratio is, it won't save you.

So what should you do? Before entering a trade, think carefully about how much you could lose. For example, if I can lose at most $10, then I need to see if the market can give me a chance to make $15 or $20. If yes, then this trade is worth taking. If not, just skip it. Keep doing this, and your risk-reward ratio will naturally improve.

I have a student whose win rate is 71%, and his risk-reward ratio is 1:1.5. After about ten days, he basically broke even—no significant profit or loss. Why? Because his risk-reward ratio isn't high enough. If he can increase his risk-reward ratio to 1:2 or 1:2.5, his returns would be completely different even with the same win rate.

Long-term record-keeping of every trade is a good habit. You will gradually discover your true win rate and risk-reward ratio, and understand why you keep losing. More importantly, you'll find the trading style you're best at—some are suited for range trading, some for trend trading, some excel at rebounds. Focus on your strengths, and both your risk-reward ratio and win rate won't look so bad.

So stop stressing over win rate. Focus on optimizing your risk-reward ratio—that's the key to stable profits in trading.