The Breakeven Win Rate is calculated through the Risk to Reward (RR) Ratio, which measures how much your potential reward is, for every unit risk you take. The Risk is the distance from the entry price to the stop loss and represents the risk you are willing to take on this trade ie the amount you are comfortable with losing.
The Reward is the distance from the entry price to the profit target. It is the potential profit that you expect from the position. A 1:2 RR Ratio means that for every one $1 risked, you expect to win $2. The same ratio can be expressed in different way. It is not enough to just have many winning trades. How much you win when you’re right and how much you lose when you’re wrong is essential for your success. This is exactly what the Breakeven Win Rate gives you. It is calculated through the following formula:
Breakeven Win rate = Risk Rate / (Risk Rate + Reward Rate)
So, if we have risk/reward ratio of 1:2
1 / (1 + 2) = 0.33 or 33%
This result shows that 33% of all trades need to be winners for the trading system to be profitable.