Who it's for — Anyone who must «be right» on every trade. With adequate R:R, you can be wrong often and still break even or profit long term.
The risk/reward ratio (R/R) compares distance to stop loss (risk, 1R) with distance to take profit (potential reward).
Risk $50 for target $150 → R/R 1:3.
In simple terms — Lose $1 if wrong, make $3 if right. Even with many losses, a few wins can cover the account.
R/R and win rate
Expectancy depends on both. Example R/R 1:3 over 10 trades:
- 7 losses (−7R) + 3 wins (+9R) = +2R net
With inverted R/R (risk $100 to make $50) you need win rate > ~67% just to avoid losing.
| R/R | Indicative breakeven win rate |
|---|---|
| 1:1 | ~50% |
| 1:2 | ~33% |
| 1:3 | ~25% |
(Simplified, excluding transaction costs.)
Operational rule
Many professional setups discard trades with R/R below 1:2 to the nearest structural level. Short losses (1R), wide targets (2–3R) — not the reverse.
Common mistake — Taking profit too early and letting losses run (or widening stop): destroys planned R/R.
Summary
- Calculation: stop distance vs TP distance, in R units.
- Not enough alone: needs win rate / expectancy over sample.
- Metric: R-multiple on closed trades.
Bronze path — Risk module. Index: Bronze path.