Are you getting cocky over a few profits in your account? Brother, you might be walking into one of the easiest traps in trading.

Recently, I looked at the trading records of some new entrants and found an interesting phenomenon — everyone is bragging about how many times they "won," but has anyone actually calculated "how much each win is worth"?

I've been down this road too. In the early days of trading, I made ten successful trades in a month, with a win rate soaring to 70%, feeling on top of the world. But what happened? The last big loss wiped out all the profits, and the account went from positive back to break-even. That moment made me realize — trading isn’t about who wins more often, but about how smart you are when you lose.

**How exactly is the risk-reward ratio calculated?**

Simply put, it’s one formula: average profit per trade ÷ average loss per trade.

For example, suppose you set a stop-loss at 10% of the initial amount and a take-profit at 20%. Then the risk-reward ratio is 2:1. What does that mean? Even if your win rate is only 33%, over the long run, your account can still break even.

Top Wall Street traders have win rates of only 35%-50%, yet they still make huge profits — all thanks to this one trick. If you make a profit of 3,000 yuan per trade and your stop-loss is 1,000 yuan, then your risk-reward ratio is 3:1. With this ratio, even a win rate of just 30% can still make money over time.

**Why is the risk-reward ratio more valuable than win rate?**

The data makes it clear. A 30% win rate with a 3:1 risk-reward ratio? You can still make money in the long run. Conversely, a 70% win rate but a 1:2 risk-reward ratio? Sorry, but playing like that will eventually lead to losses.

Many people just don’t understand this because they only focus on "today’s wins or losses," never looking at the entire cycle of account growth. The harsh truth about trading is — it will show you with real returns which strategies work and which are just a waste of time.