Two traders can have the same 50% win rate and opposite results. One wins $100 and loses $200; the other wins $200 and loses $100. The difference is the risk-reward ratio — and together with the win rate it decides whether a strategy makes money at all.
- Risk-reward compares the distance to take-profit with the distance to stop-loss.
- The break-even win rate is 1 ÷ (1 + R): 50% at 1:1, 33.3% at 1:2, 25% at 1:3.
- Expectancy — win rate and R:R combined — is the real measure of an edge.
- Spread and commission lower the real R:R, especially on small stops.
- Set stops and targets from market structure, then check the ratio meets your minimum.
- Measure your own results in R over at least 50–100 trades.
How to calculate risk-reward
R:R = Reward ÷ Risk
EURUSD buy 1.0850, SL 1.0825, TP 1.0910 → 25 : 60 pips = 1 : 2.4
Traders often express results in R, where 1R is the amount risked on a trade. A win at 1:2.4 is +2.4R, a full loss is −1R. Measuring in R makes results comparable across different account sizes and instruments.
Break-even win rate
For any R:R there is a minimum win rate below which the strategy loses money (before costs).
R = 2 → 1 ÷ 3 = 33.3%
| R:R | Break-even win rate | At 45% win rate (per 100 trades) |
|---|---|---|
| 1 : 0.5 | 66.7% | −32.5R |
| 1 : 1 | 50.0% | −10R |
| 1 : 1.5 | 40.0% | +12.5R |
| 1 : 2 | 33.3% | +35R |
| 1 : 3 | 25.0% | +80R |
| 1 : 4 | 20.0% | +125R |
A 45% win rate loses money at 1:1 and makes a lot at 1:3. That is why a high win rate on its own says nothing — many martingale systems win 90% of trades and still destroy accounts because their average loss is huge.
Expectancy in R
0.40 × 2.0 − 0.60 × 1 = +0.20R per trade
At +0.2R per trade and 1% risk, 100 trades produce roughly +20% before compounding and costs. Expectancy combines win rate and R:R into one number — the real measure of an edge.
ΣCalculate R:R and expectancy instantlyFree SL/TP & R:R and Expectancy calculators→How spread and commission change your real R:R
Costs are paid on every trade, win or lose, so they shrink the reward and enlarge the risk. On tight scalps the effect is large.
| Setup | Planned R:R | With 1-pip cost | Break-even win rate |
|---|---|---|---|
| SL 10, TP 20 pips | 1 : 2.0 | 11 : 19 → 1 : 1.73 | 36.7% |
| SL 25, TP 50 pips | 1 : 2.0 | 26 : 49 → 1 : 1.88 | 34.7% |
| SL 50, TP 100 pips | 1 : 2.0 | 51 : 99 → 1 : 1.94 | 34.0% |
The wider the stop relative to the spread, the smaller the hidden cost. Scalpers need a much higher win rate than the "planned" R:R suggests.
Which R:R should you use?
There is no universal best ratio. Higher targets mean fewer wins; tighter targets mean more wins with smaller payouts. The right R:R is the one that fits the market structure of your setup:
- Place the stop where the trade idea is invalid — beyond a swing, a liquidity sweep or a key level.
- Place the target at the next logical obstacle — opposite liquidity, a session high/low, a higher-timeframe level.
- Take the trade only if the resulting R:R meets your minimum (for many traders 1:1.5–1:2).
- Never move the stop further away to "improve" the R:R after entry.
Losing streaks at different R:R
Lower win rates mean longer losing streaks. A strategy with a 1:3 ratio and a 30% win rate is profitable, but you must be able to sit through long runs of losses without changing the plan. Over 200 trades, these are typical worst streaks you should expect:
| Win rate | Typical worst losing streak (200 trades) | At 1% risk |
|---|---|---|
| 60% | ≈ 5–6 | ≈ −5% to −6% |
| 50% | ≈ 7 | ≈ −7% |
| 40% | ≈ 8–9 | ≈ −8% to −9% |
| 30% | ≈ 11–12 | ≈ −10% to −11% |
The figures are approximations of what random sequences commonly produce, not guarantees. The lesson: if you choose high R:R targets, reduce risk per trade so the inevitable streaks stay comfortable.
How to measure your real R:R
- Record every trade with entry, initial stop, exit and result in money.
- Convert the result to R: result ÷ initial risk.
- After 50–100 trades calculate win rate, average win in R and average loss in R.
- Compute expectancy and compare it with what you planned.
Most traders discover that their average loss is larger than 1R (moved stops, slippage) and their average win smaller than planned (early exits). Fixing those two habits usually improves results more than any new setup.
The psychology of R:R
High win-rate strategies feel good and are easy to follow; high R:R strategies feel bad most of the time. Many traders abandon a profitable 1:3 system after six losses in a row and switch to something that "wins more often" but earns less. Choose the profile you can actually execute, and judge it on a large sample.
Partial take-profit and break-even
Closing half the position at 1R and moving the stop to break-even feels safe, but it changes the maths. Many trades that would have reached 3R now return only about 0.5R overall, while some trades that would have hit the stop break even instead. Test both versions on your own trade history — for trend-following strategies, full targets often produce a higher expectancy; for choppy markets, partials can smooth the equity curve.
Track every trade in R for at least 50–100 trades. Your real average win, average loss and win rate tell you more than any textbook ratio.
Frequently asked questions
Educational content only, not financial advice. Leveraged trading carries a high risk of loss. Past performance does not guarantee future results. Broker and prop-firm rules change — always check the current conditions of your provider.
