Who this is for — Anyone promising 1:3 R/R but banking 0.8R and losing 1.5R. Payoff measures what happens **after** execution, not on the pre-trade sheet.
Payoff ratio = average win ÷ average loss (absolute value). With win rate it determines whether the system survives losing streaks.
In plain terms — How much you gain when you win vs how much you lose when wrong — the real balance.
Formula and thresholds
Payoff = Average Win / |Average Loss|
| Payoff | Indicative min win rate* |
|---|---|
| 1.0 | ~50% |
| 2.0 | ~33% |
| 3.0 | ~25% |
*Break-even approximation ex costs; use expectancy for precision.
Payoff < 1 → needs very high win rate — fragile on regime change.
Payoff vs theoretical R/R
| Pre-trade R/R | Ex post payoff |
|---|---|
| Setup promise | Real result (exits, slippage) |
| Ideal | Journal |
Gap payoff < planned R/R → early exits or widened stops.
Typical mistake — Payoff 0.6 + 55% win rate — temporary illusion; negative streak wipes the account.
Example — Avg win +2.1R, avg loss −1R → payoff 2.1 → break-even ~32% win rate.
Summary card
- Formula: avg win / |avg loss|.
- With: win rate → expectancy.
- Review: monthly on sample ≥ 30 trades.
Silver path — Metrics module. Index: Silver path.