Guide
Understanding Risk-Reward Ratio
Risk-reward ratio compares the distance from entry to stop loss with the distance from entry to target.
How it is calculated
Risk = |Entry − Stop Loss|
Reward = |Target − Entry|
Reward multiple = Reward ÷ Risk
Reading the result
A result of 1 : 2 means the planned reward is twice the planned risk. A result of 1 : 0.8 means the planned reward is smaller than the planned risk.
Break-even win rate
Ignoring charges and slippage, the theoretical break-even win rate can be estimated as:
Break-even win rate = Risk ÷ (Risk + Reward)
| Risk : Reward | Theoretical break-even win rate |
|---|---|
| 1 : 1 | 50.00% |
| 1 : 1.5 | 40.00% |
| 1 : 2 | 33.33% |
| 1 : 3 | 25.00% |
These figures are mathematical estimates, not guarantees. Real trading includes costs, slippage, partial exits and execution differences.