Lesson 23 of 69
Risk-to-reward ratio
7 min read
Chapter checkpoints
0/2Optional — tick a chapter as you finish it to keep your place inside this lesson.
(RRR) compares what you stand to lose with what you stand to gain. Risk 30 to make 60 and you have a 1:2 trade. Traders shorten this to 'R': your initial risk is 1R, so that target is 2R.
Win rate is meaningless on its own
A 40% win rate sounds terrible until you pair it with reward. Expectancy = (win rate × average win) − (loss rate × average loss). What matters is the combination, never either number alone.
| RRR | Breakeven win rate | Result at 50% wins |
|---|---|---|
| 1:1 | 50% | Flat before costs |
| 1:1.5 | 40% | +0.25R per trade |
| 1:2 | 33% | +0.5R per trade |
| 1:3 | 25% | +1R per trade |
Do the sum before you click
100 trades at 1:2 with only a 40% win rate returns +20R. 100 trades at 1:1 with a 55% win rate returns +10R. The trader who is 'wrong' more often makes twice as much.
Using RRR honestly
- Measure it from your real entry to a target the market can plausibly reach — not to a number that makes the ratio look good.
- If the sensible target gives less than 1:1.5, the setup is a pass. There will be another one.
- Never widen the stop to improve the ratio; that is the same as taking a bigger loss.
- Log the planned R and the realised R for every trade — the between them is your management skill.
Key takeaways
- Risk-to-reward compares what you risk with what you stand to make.
- At 1:3, a win rate near 25% is enough to break even.
- A high win rate still loses money if the losses are much bigger than the wins.
- Judge trades by expectancy over many trades, not by the last result.
Knowledge check
3 quick questions — your best score is saved to your progress.
1. A trade risks 20 pips to make 60 pips. What is the risk-to-reward ratio?
2. With a 1:3 ratio, roughly what win rate do you need to break even?
3. Why can a high win rate still lose money?
Progress is saved on this device.
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