My book says the payoff ratio is "Average winning trade dollar amount divided by the average losing trade dollar amount". So if you have 10 winning trades resulting in a gross profit of $3000 and 2 losing trades resulting in a gross loss of $1000, then I'd get the payoff ratio: (3000 / 10) / (1000 / 2) = 0.6 Is this correct? If so, then many winning trades with a smaller average profit and just a few losing trades with a larger average loss will give you a small payoff ratio. On the other hand, a few winning trades with a larger average profit and many losing trades with a smaller average loss will give you a big payoff ratio. Then, you could have a losing system with a big payoff ratio, and vice-versa. How do you interpret and utilize the payoff ratio?