Two traders. Both show 75% win rate. One is a genius. The other is about to blow up.
Win rate tells you nothing about how much they won or lost. It only tells you how often.
This is why win rate is the most misleading metric in copy trading—and why Sharpe Ratio reveals the truth.
The Win Rate Trap
Why Win Rate Is Misleading
Trader A: 75% Win Rate
Trader B: 45% Win Rate
Trader B with 45% win rate is 600% more profitable than Trader A with 75% win rate.
Win rate alone tells you nothing about profitability.
How Traders Game Win Rate
Trick #1: Tiny Wins, Massive Losses
Win 95% of trades by taking $1 profits. Lose 5% of trades at -$100 each.
95% win rate, but you're still losing money overall.
Trick #2: Hold Losers Forever
Never close losing trades (they don't count as "losses" until closed). Only close winners.
100% win rate shown, but huge unrealized losses hidden.
Trick #3: Add to Losers (Martingale)
Double down on losing trades until they become winners. Looks great until it blows up.
90%+ win rate, then sudden -100% account loss.
Why Sharpe Ratio Can't Be Gamed
Sharpe Ratio = (Return - Risk-Free Rate) / Volatility
Sharpe Ratio accounts for:
- ✓Total returns (not just win count)
- ✓Volatility (how bumpy the ride was)
- ✓Risk taken (rewards consistency)
A trader with 45% win rate but excellent risk management will have higher Sharpe than a 75% win rate trader with poor risk management.
Real-World Comparison
| Trader | Win Rate | Annual Return | Sharpe Ratio | Verdict |
|---|---|---|---|---|
| Trader A | 85% | -12% | -0.3 | AVOID |
| Trader B | 55% | +28% | 0.9 | OK |
| Trader C | 48% | +42% | 1.6 | EXCELLENT |
Trader C has the lowest win rate but the best performance and highest Sharpe Ratio.
Key Takeaways
- ✅ Win rate alone is meaningless—it doesn't account for position sizes
- ✅ Traders easily game win rate with tricks (holding losers, tiny wins)
- ✅ Sharpe Ratio accounts for total returns AND volatility
- ✅ Low win rate + high Sharpe = skilled trader (lets winners run)
- ✅ High win rate + low Sharpe = gamed metric (red flag)
