What is R:R (risk/reward ratio)?
R:R (risk/foyda nisbati)
In short
Potential profit divided by the amount risked: (target − entry) ÷ (entry − stop). 1:2 means $2 of target per $1 at risk.
At 1:2 you only need to win about 33% of trades to break even: required win rate = 1 ÷ (1 + R).
Also known as: risk reward, risk/reward, R
R:R (risk/reward) is the ratio of a trade's potential profit to its potential loss. It is calculated from the entry, stop-loss and take-profit levels:
- R:R = (Target − Entry) ÷ (Entry − Stop)
1:2 means $2 of target for every $1 at risk. The ratio is known before the trade starts and answers the question "is this trade worth taking?"
Required win rate
R:R and win rate are linked. The minimum win rate to break even is 1 ÷ (1 + R). At 1:1 you need 50% winners, at 1:2 about 33%, at 1:3 just 25%. That is why a system with a low win rate but a high R:R can be profitable — and vice versa.
Limitations
A high R:R is not automatically a good trade. It is easy to "get" 1:5 by placing the target very far away, but price rarely reaches it. The real outcome is shown by expectancy: the ratio and the probability of achieving it together. R:R is also very sensitive to the entry price — a late entry badly distorts it.
Stop $2 below, target $4 above: two dollars of expected reward for each dollar at risk.
Formula: 1 ÷ (1 + R). The higher the R:R, the fewer wins you need.
Example
An illustrative trade: entry $120, stop $114, target $135.
- Risk: $120 − $114 = $6.
- Reward: $135 − $120 = $15.
- R:R = 15 ÷ 6 = 1:2.5.
- Required win rate: 1 ÷ (1 + 2.5) ≈ 28.6%.
Now suppose you use the same levels but enter late at $126 after price has already moved: risk $12, reward $9 → R:R = 1:0.75, required win rate 1 ÷ 1.75 ≈ 57.1%. The levels didn't change, but the trade is completely different. To calculate: risk/reward calculator.
Mistakes and tips
Always calculate R:R from your actual fill price, not from the price in the plan or the signal.
Don't choose trades by R:R alone: a 1:4 target placed somewhere illogical will almost never be hit.
Shrinking the stop to make R:R look better is risky: a very tight stop gets hit by ordinary noise.
Record both planned and actual R:R in your trading journal — the gap between them shows your discipline.
Calculate it
Frequently asked questions
- What is a good risk reward ratio?
- Many traders aim for at least 1:2, but there is no universal number. What matters is that, combined with your win rate, it gives a positive expectancy.
- Is trading with a 1:1 ratio profitable?
- Only if more than 50% of trades win and the profits cover commissions. In practice that is hard, so ratios below 1:1 are usually avoided.
Learn it in the Academy
This term is covered with hands-on examples and a quiz in these lessons of the interactive course.
- Long-term investing vs tradingCompounding, DCA with numbers, diversification and allocation, rebalancing, historical drawdowns and an investor's most expensive mistakes.Open lesson · 12 min
- Chart patterns: head and shoulders and trianglesHead and shoulders and the three triangles: anatomy, psychology, neckline, measured-move targets, retests, volume and failed patterns.Open lesson · 12 min
- FVG and liquidity: why price comes backFair value gaps, the CE (50%), liquidity pools, sweeps versus real breakdowns — and how to combine them with order blocks into a trade plan.Open lesson · 11 min
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