Risk-to-Reward Ratio

R:R is the relationship between what you risk and what you stand to gain on a trade. It's the single metric that determines whether your strategy is profitable.

The Formula

R:R = Distance to Target ÷ Distance to Stop Loss

Example:

• Entry: $42,000
• Stop Loss: $41,800 (risk = $200)
• Target: $42,600 (reward = $600)
• R:R = 600 / 200 = 3:1

Why R:R Matters More Than Win Rate

Here's the math that changes everything:

| Win Rate | R:R | Result per 10 trades (risking $100) | |----------|-----|--------------------------------------| | 50% | 1:1 | Break even ($0) | | 50% | 2:1 | +$500 profit | | 40% | 3:1 | +$800 profit | | 30% | 4:1 | +$900 profit | | 60% | 1:1 | +$200 profit |

A 30% win rate with 4:1 R:R crushes a 60% win rate with 1:1 R:R.

This is why chasing win rate is the wrong game. Chase R:R.

The Breakeven Formula

Minimum Win Rate = 1 ÷ (1 + R:R)

| R:R | Minimum Win Rate to Break Even | |-----|-------------------------------| | 1:1 | 50% | | 2:1 | 33.3% | | 3:1 | 25% | | 5:1 | 16.7% |

Setting Realistic R:R

Minimum 2:1

Never enter a trade where the target isn't at least 2x your risk. This gives you margin for error.

How to Achieve Higher R:R

• Tighter stops — Use LTF precision entries at high-confluence zones
• Wider targets — Let winners run to the next major level
• Patience — Wait for price to come to your zone instead of chasing

R:R in Practice

Before Every Trade

1. Mark your entry level
2. Mark your stop loss (where you're wrong)
3. Mark your target (next key level)
4. Calculate: Target distance / Stop distance
5. If R:R < 2 → Skip the trade

During the Trade

• Don't move your stop loss further away (increases risk)
• Consider moving stop to breakeven after 1R in profit
• Take partials at 2R, let the rest run to full target

Common Mistakes

• Moving targets closer because of fear
• Not having a target at all (hoping for a "big move")
• Taking 1:1 setups because they "look good"
• Calculating R:R after entering instead of before

Key Takeaway

Risk-to-reward is your mathematical edge. With a 2:1 R:R, you only need to be right 34% of the time to make money. Structure every trade around this ratio.