Risk-Reward Ratio Practice
The risk-reward ratio compares what you risk to what you aim to make. Master it and you can be right less than half the time and still come out ahead. Train to think in R, not in dollars.
Risk-reward compares the distance from entry to stop (your risk, "1R") with the distance from entry to target (your reward). A 1:3 ratio means you risk one unit to make three. Combined with your win rate, it determines whether a strategy makes money over many trades.
How to spot it
- ✓ Define entry, stop and target before you commit.
- ✓ Risk (R) = entry minus stop; reward = target minus entry.
- ✓ Express the trade as a ratio, e.g. 1:2 or 1:3.
- ✓ Pair it with win rate: at 1:2, you only need to win ~34% to break even.
- ✓ Reject trades where the ratio is poor, even if you "like" them.
⚠️ Common mistake
Chasing a high win rate while ignoring the ratio. Winning often on tiny gains and losing rarely on huge losses is how accounts bleed out. The ratio is what protects you.
FAQ
What is a good risk-reward ratio?
Many traders look for at least 1:2, but the right number depends on your win rate. A lower ratio can work with a high win rate and vice versa. This page is practice, not advice.
How does this connect to position size?
Once you fix your risk per trade and your stop distance, the position size follows. Try the position size calculator to see the math. Not financial advice.