Risk-Reward Ratio: Why It Matters More Than Win Rate
A system that wins only 40% of the time can be profitable. One that wins 80% can still lose money. Here's the math.
Risk-reward ratio (R:R) compares how much you stand to lose if your stop-loss is hit versus how much you aim to make at your target. Risking $100 to make $200 is 1:2 — expressed as R multiples, a +2R winner against a −1R loser.
Now combine it with win rate. Your expectancy per trade is roughly:
expectancy = winRate × avgWin − lossRate × avgLoss
The second trader looks brilliant on their account screenshot and goes exactly nowhere.
This is why chasing high win rates (tight targets, huge stops) feels great and pays poorly, while disciplined traders accept being wrong often — because their winners are simply bigger than their losers.
Practice the arithmetic until it's reflexive, then practice applying it under uncertainty. Both are skills, and both are trainable without risking real capital.
Practice this interactively — free
The “Position Sizing & R” path turns this into short chart exercises where you make the call and see what actually happened next.
Common questions
- Is a 1:1 risk-reward bad?
- Not inherently — but below 1:1 you need to be right far more often than half the time just to break even after costs.
- Should I move my stop-loss further away?
- Extending a stop after entry breaks your planned risk math and turns small losses into big ones. Size correctly from the start instead.
- What's a good average R for beginners?
- There's no magic number; consistency of process matters more. Many strategies target minimums around 1.5–2R while accepting sub-50% win rates.