Your risk-to-reward ratio (R:R) compares what you stand to lose against what you stand to gain on a trade. Risk $1 to make $2 and you're trading 1:2. It sounds basic — but it's the single number that decides whether your strategy can survive a normal losing streak.
Most new traders obsess over win rate. They want to be right. But you can be right most of the time and still lose money if your losers are bigger than your winners. R:R is how you make sure being wrong stays cheap.
How to measure it
R:R is set the moment you plan the trade:
- Risk = entry price − stop-loss (where the idea is wrong).
- Reward = target − entry (where you'll take profit).
- R:R = Reward ÷ Risk.
If your stop is 20 pips away and your target is 60 pips away, that's a 1:3 trade. Decide both before you enter — never after, when emotion is driving.
The math that matters: break-even win rate
Every R:R has a minimum win rate you need just to break even. Beat it and you're profitable; fall below it and you bleed:
| Risk : Reward | Break-even win rate | What it means |
|---|---|---|
| 1 : 1 | 50% | You must be right half the time |
| 1 : 2 | 33% | Win 1 in 3 and you're flat |
| 1 : 3 | 25% | Win 1 in 4 and you're flat |
| 2 : 1 | 67% | You must be right two-thirds of the time |
Why R:R beats win rate
A 90% win rate feels amazing — until the 1-in-10 loss is ten times the size of a win and erases the whole streak. Good traders accept being wrong often because their winners pay for many losers. They keep losses small and let winners run. That's not a slogan; it's the arithmetic above.
Putting it together
- Find a real level and a clean stop using support & resistance.
- Set a target that gives you at least 1:2 — if it doesn't, skip the trade.
- Size the position from your risk rule with the position size calculator.
- As price moves to your first target, trail the stop to protect the gain.
Notice that R:R, levels and position size are one connected system — change one and the others move. That's exactly how disciplined traders think about every single trade.
Bottom line
Risk-to-reward is the asymmetry that lets you be wrong and still win. Plan your stop and target up front, demand at least 1:2, and let the math do the heavy lifting. Protect the downside and the upside takes care of itself.