1. Understanding the Core Components
This metric compares the average dollar amount of your winning trades to the average dollar amount of your losing trades. It's a crucial indicator of your strategy's risk-to-reward profile.
- Average Win: The total profit from all winning trades, divided by the number of winning trades.
- Average Loss: The total loss from all losing trades, divided by the number of losing trades.
2. What is the R:R Ratio?
The large number shown on your dashboard is the Risk-to-Reward (R:R) Ratio, calculated by dividing your Average Win by your Average Loss.
Average Win / Average Loss
An R:R Ratio of 1.75 means that for every $1 you lose on an average losing trade, you make $1.75 on an average winning trade. Striving for a ratio greater than 1.0 is essential for long-term profitability.