Glossary / Risk
Risk-reward ratio
Definition
The size of your planned target compared with the size of your stop.
Why it matters
Every risk-reward ratio implies a break-even win rate. At 1:2 you need to win more than 33.3% of the time to make money before costs.
Formula
Break-even win rate = 1 / (1 + R:R)
Example
A 20-point stop and a 40-point target is 1:2, so you need to win more than 33.3% of the time to break even before commissions.
How to track it in a journal
TradeStack calculates the core performance numbers — win rate, average win and loss, profit factor, expectancy, drawdown and consistency — automatically from imported trades, so risk-reward ratio stops being something you estimate and becomes something you read.
Related terms
R multiple
A trade result expressed as a multiple of the amount you risked.
Position sizing
Choosing how many shares, contracts or lots to trade based on your stop distance and risk budget.
Drawdown
The decline from a peak in your equity curve to the following trough.
Maximum drawdown
The largest peak-to-trough decline in your account history.
Questions that use this term
Keep reading
Trading journal guides
Expectancy, profit factor, drawdown, backtesting and the PDT rule.
Free trading calculators
Position size, risk-reward, expectancy and options profit.
Expectancy calculator
Expected profit per trade from your own numbers.
Broker CSV export guides
Step-by-step exports for Tradovate, NinjaTrader, IBKR and more.
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