Can a 40% win rate at 2R make money after trading costs?

Yes in a simplified model; a 40% win rate with +2R winners and −1R losers averages +0.2R before costs. It is positive after costs only if the assumed average all-in cost is below 0.2R per trade. Neither the win rate nor the target ratio alone establishes a profitable strategy.

Calculate a complete hypothetical batch

Assume 100 trades, fixed initial cash risk of 10 USD per trade, 40 wins at +2R and 60 losses at −1R. This is invented arithmetic, not an app result or forecast.

• Gross wins: 40 × 2R = +80R.
• Gross losses: 60 × −1R = −60R.
• Gross total: +20R, or 200 USD under the fixed-risk assumption.

All-in assumed cost per trade	Cost for 100 trades	Net total
0R	0R	+20R
0.1R	10R	+10R
0.2R	20R	0R
0.3R	30R	−10R

At 10 USD initial risk, 0.1R is 1 USD. The cost figure must include the effects you are subtracting—such as round-trip fees, spread and slippage—without counting an effect twice if the recorded fill already includes it. Holding or financing costs depend on the instrument and trade duration.

What is the formula?

Let p be win probability, b be the winner in R, and c be cost in R on every trade. Assume every gross loser is exactly −1R:

Expected net R = p × b − (1 − p) − c.

Set it to zero and solve: p = (1 + c) ÷ (b + 1). With b = 2 and c = 0.1, p = 1.1 ÷ 3 ≈ 36.7%. Before costs, the same model breaks even at 33.3%.

This formula changes if losses, costs or payoffs vary. A more general calculation is p × average gross winner − (1 − p) × average gross loss magnitude − average cost. If journaled returns are already net, average those returns directly.

Why can a 2R target still disappoint?

A planned target is a price reference. Some positions may exit early, lose more than 1R, have partial fills or remain unresolved. Calculate the realised average rather than assuming every winner reaches 2R. Also inspect drawdown and clusters of related trades: positive sample average is not a promise about the next sequence.

Our 25 targetFirst labels out of 110 selected touches cannot be inserted as a strategy win rate. They are zone events without execution; the methodology explains why.

A useful self-check

Before trusting a result, write: “Are my returns gross or net? Is 2R a target or the average achieved? Are skips and unresolved positions handled consistently? How many rule versions did I try?” Use the journal guide to preserve those answers.

Price Action Trading Simulator lets you choose a simulated fee in R in manual backtesting. Setup is free to inspect; starting a session needs Pro. Its historical replay does not reproduce actual broker costs or fills. For testing quality beyond this arithmetic, read does price action work?.