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Sample size

The number of trades behind a statistic; small samples make win rate and expectancy unreliable.

A 70% win rate over 10 trades tells you almost nothing; over 300 trades it is meaningful. Randomness alone produces long streaks, so judging a strategy or yourself on a handful of trades leads to abandoning good approaches and keeping bad ones.

Most traders should think in blocks of 20 to 50 trades before evaluating a change, and in hundreds before trusting a number.

Example: a coin with a true 50% hit rate will land 7 or more heads out of 10 about 17% of the time. A strategy that looks 70% over ten trades may be a coin.

Related: expectancy, win-rate, backtesting, gamblers-fallacy

See it drawn

Original diagrams for the ideas on this page. Illustrative, not real market data.

The win rate needed to break evenA falling curve: the more a winning trade pays relative to the amount risked, the smaller the share of trades that must win to break even.BREAKEVEN WIN RATE0%20%40%60%80%1:11:21:31:41:5REWARD-TO-RISK RATIO1:1 needs 50%1:2 needs 33.3%1:3 needs 25%breakeven win rate = 1 ÷ (1 + reward-to-risk)above the curve, wins more than cover losses
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.