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Average win size divided by average loss size. The magnitude metric that pairs with win rate.
Gain/Loss Ratio is the average gain in winning periods divided by the average loss in losing periods. A gain/loss ratio of 2.0 means the portfolio gains twice as much in winning months as it loses in losing months on average. Combined with win rate, it tells the full story of a strategy's payoff profile.
G/L = mean(Rᵢ | Rᵢ > 0) / |mean(Rᵢ | Rᵢ < 0)|G/L = mean(Ri | Ri > 0) / |mean(Ri | Ri < 0)|A high ratio means winners are big relative to losers. A low ratio means losers eat winners.
A high gain/loss ratio with a modest win rate (40–50%) often beats the inverse — it is the trend-follower's profile. The classic "cut losses short, let winners run" strategy aims for asymmetric gain/loss ratios.
Winning months averaged +3.2%; losing months averaged −1.8%.
Gain/Loss Ratio = 3.2 / 1.8 = 1.78
For every dollar lost in losing months, you gained $1.78 in winning months on average. Combined with even a 45% win rate, this is profitable: 0.45 × 1.78 − 0.55 × 1.0 = 0.251 expected return per period.
Use this with win rate. Expected return per period ≈ (Win Rate × Gain/Loss) − (1 − Win Rate). Anything positive means profitable; the higher, the better.
Above 1.0 means wins are bigger than losses on average. Above 1.5 is strong. Trend followers target 2.0+.
Profit factor is total profit / total loss (size-weighted). Gain/loss ratio is mean win / mean loss (count-weighted). Profit factor accounts for number of trades; gain/loss ratio does not.
E[R] ≈ Win Rate × Avg Gain − (1 − Win Rate) × Avg Loss. Both inputs together determine profitability.
Yes — alongside win rate and profit factor in the timing section.
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