What is Win/Loss Ratio?
A win/loss ratio is ratio of won opportunities to lose opportunities in trades and is therefore, focused on only finding how the number of winners and losers, instead of taking into account the amount won or lost.
The win/loss ratio is more involved to determine the count of winners or losers than the magnitude of the amount of sum won or lost. In business, it is majorly used to find the deals which are won and the deals which are lost but do not take into consideration the deals which are still in progress or pipeline.
Win/Loss Ratio Formula
Win/Loss ration can be explained by the formula mentioned below:
Here it does not take into account deals that are in the pipeline or progress. Only the deals which have been completed and we have an outcome are taken into consideration.
How to Calculate the Win/Loss Ratio?
There are primarily three steps involved to calculate the win/loss ratio.
- The first and foremost step is gathering data. Here we collect the name and details about each opportunity which was available and what was the related outcome for it, i.e., whether it was won or lost or is in the pipeline.
- After gathering the data points, there comes the stage where a deep dive analysis is required. We calculate various metrics and plot them on graphs, for example, like win rate, win-loss ratio, win-loss by sales, win-loss by competitors, and reason for the loss.
- The final step is coming to a conclusion based on the ratio analysisRatio AnalysisRatio analysis is the quantitative interpretation of the company's financial performance. It provides valuable information about the organization's profitability, solvency, operational efficiency and liquidity positions as represented by the financial statements. and deep-dive insights where the business focuses on opportunities for improvement based on the trends and also understand where they missed those opportunities.
Example of Win/Loss Ratio
- Let us assume a trader places trade every day for a particular company in the stock market. On a specific day, he has placed a total of 50 trades. These are trades that are unique and are distinctive too. At the end of the day, all the trades get executed, and we have an outcome.
- All the trades were for intraday were few of the trades the trader has made some money and few of the trades he has lost. The trades where he has made a profit on an intraday basis are called won trades, and vice versa, the trades where he has made loss are called loss trades.
- It is seen that out of 50 trades, 20 trades were won trades, and the rest 30 trades were the lost trades. Thus to calculate the win-loss ration, we need to divide the won trades with loss trades, which is 20/30 = 0.66. It means the trader has lost 66% of the time in a day out of all trade activities. The win/loss ratio is also a dependent factor to calculate the risk-reward ratioRisk-reward RatioThe risk-reward ratio is the measure used by the investors during the trading for knowing their potential loss to the potential profit. Hence it is used by the traders for effectively managing their risk and capital during the trading process..
- Although the win/loss ratio is primarily used to predict the success rate and assign a probability for it, which comes handy for stockbrokers or traders, at times, it may not be that effective measure. It is because it misses on the ground that it does not take into account the monetary value of the opportunities won or lost for each trading activity.
- But still, it can be considered a key benchmark for traders in the market to determine the number of winning relatively to the occasion of losing trade too. It overall tells us how many times a trader will be successful in making money to how many times he will taste failure.
- The win/loss ratio is categorically used with the win rate ratio to calculate the probability of success for a trader. However, as stated above, this is not always the real picture because we are not taking into account the dollars involved in a trade. An efficient trader is one who has a more win-loss ratio in terms of not only a count of trade but also the dollar value involved in the trade.
This article has been a guide to What is Win/Loss Ratio & its Definition. Here we discuss how to calculate the win/loss ratio along with an example and formula. You can learn more about from the following articles –