Risk-Reward Ratio — The Math Behind Profitable Trading
Win rate alone doesn't make you profitable. The risk-reward ratio does. Learn how to calculate RR, what "breakeven win rate" means, and why RR ≥ 2 is the gold standard.
Risk-Reward Ratio — The Math Behind Profitable Trading
A 90% win rate with bad RR will lose money. A 40% win rate with great RR can make you rich.
If you've ever wondered why a strategy that "wins most of the time" still drains your account, the answer is the risk-reward ratio (RR).
What is risk-reward?
RR measures how much you risk versus how much you stand to gain on a trade:
RR = (Target − Entry) ÷ (Entry − Stop)
Example: Entry $50, stop $48, target $56.
- Risk = $50 − $48 = $2
- Reward = $56 − $50 = $6
- RR = 6 ÷ 2 = 3 → "1:3"
For every $1 you risk, you make $3 if the trade works.
The breakeven win rate
Every RR has a breakeven win rate — the minimum win rate to not lose money:
Breakeven win rate = 1 ÷ (1 + RR) × 100
| RR | Breakeven win rate |
|---|---|
| 1:1 | 50% |
| 1:2 | 33% |
| 1:3 | 25% |
| 1:5 | 16.7% |
Insight: With a 1:3 RR, you can be wrong 75% of the time and still break even. With a 1:1 RR, you need to be right more than half the time — and after fees, that's hard.
Why beginners should target RR ≥ 2
- Psychological edge: A high-RR strategy absorbs losing streaks without breaking you emotionally
- Forgives mistakes: You can be wrong often and still profit
- Forces discipline: Targets are far from entry, so you can't exit early on a whim
Common mistake: cutting winners, letting losers run
The classic beginner pattern:
- Trade goes against them → they hold, hoping it recovers
- Trade goes their way → they exit early, "locking in" a tiny profit
This turns a 1:3 strategy into a 1:0.5 strategy — guaranteed to lose money over time.
Fix: Set your stop and target before entering. Walk away. Let the trade hit one or the other.
How to use RR
- Before entering, calculate RR with our calculator
- Reject trades with RR < 1.5
- Prefer RR ≥ 2
- Track your actual win rate vs breakeven — if you're below breakeven, your strategy or execution has a problem
Summary
RR is the single most important number you can compute before entering a trade. It tells you what win rate you need, and whether the trade is worth taking at all. Stop obsessing over win rate — start obsessing over RR.