The Trader's Arithmetic · Lesson 2 of 6
The Trade-Off Nobody Escapes
Win rate and reward size are not two dials you can both turn up. They are two ends of one seesaw.
Every trader dreams of the system that wins often AND wins big. The market does not sell that product. With exits set honestly, win rate and win size trade against each other, mechanically:
Tighten the target and price reaches it more often — win rate up, win size down. Widen the target and wins grow rarer but larger. Tighten the stop and losses shrink but ordinary noise clips you out constantly — win rate collapses. Widen the stop and win rate rises while each loss deepens. Each exit choice just picks a point on the same seesaw.
The breakeven arithmetic makes the trade-off exact. Risking S pips to make T pips, the win rate you must clear is S ÷ (S + T):
| Stop / Target | Shape | Breakeven win rate |
|---|---|---|
| 20 / 60 | lose small, win big | 25% |
| 40 / 40 | symmetric | 50% |
| 40 / 25 | win often, modestly | 61.5% |
| 60 / 20 | win constantly, tiny | 75% |
No row is "best" — each is a different personality with a different hurdle. The fraud to watch for, in others and in yourself, is claiming one row's win rate with another row's payoffs: the guru advertising "90% winners" is sitting on the bottom row, where 90% still barely clears breakeven — before costs.
We chose the 40/25 row with open eyes: our engines are built to qualify only favourable moments, so the design bets on clearing a 61.5% hurdle rather than on catching rare monsters. The grid testing that picked those numbers — and the overfit cell we refused — is a story told in Trade Like a Machine. The point here is only this: we can state our hurdle to one decimal place. Can the system you are being sold state its own?