Average win divided by average loss, which sets how often you need to be right to break even.
Payoff ratio = average-win / average-loss, both as positive numbers. It is the realised counterpart of the planned risk-reward-ratio, and the two usually differ because real exits do not land where plans said they would.
The pairing with win rate is the whole game. Expectancy = (win rate x average win) - (loss rate x average loss). At a payoff of 2.0, break-even requires a 33.3% win rate; at 1.0 it requires 50%; at 0.5 it requires 66.7%. See breakeven-win-rate.
Be suspicious of very high payoff ratios in short records. They typically come from one enormous winner, and a strategy whose payoff depends on a single trade has not demonstrated a repeatable edge - it has demonstrated one good outcome.
Original diagrams for the ideas on this page. Illustrative, not real market data.
Expectancy: the average trade. Forty trades sorted by outcome: 24 small losses and 16 larger wins. Weighting each side by how often it happens gives the average result per trade, marked here by the dashed line at +$120.The win rate needed to break even. How often a method must win just to stay level, for each reward-to-risk ratio. At 1:1 half the trades must win, at 1:2 a third, and at 1:3 a quarter, because each win covers more losses.
Educational only, not advice. Spotted an error? Post in Site Feedback.