Risk-reward ratio
a.k.a. R:R, Reward-to-risk
How much you risk on a trade compared with how much you aim to make, such as risking 30 pips to make 60 (1:2).
The risk-reward ratio compares the distance to your stop-loss with the distance to your take-profit. Risk 30 pips to target 60 and the ratio is 1:2.
Here is why it matters: with a 1:2 ratio, you can be wrong more often than you are right and still come out ahead. It does not guarantee anything, but it lets you survive the losing streaks that every trader hits.
Winning less than half the time
- Each trade risks 30 pips and targets 60 pips (1:2).
- Over 10 trades you win 4 and lose 6.
- Wins: 4 × 60 = 240 pips. Losses: 6 × 30 = 180 pips.
- Net: 240 − 180 = +60 pips (before costs).
Bottom line: Right only 40% of the time, still ahead, because the wins were twice the size of the losses.
Chasing a huge ratio with a target the market almost never reaches. A great ratio on paper is worthless if price never gets there.
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