Risk-to-reward (R:R)

What it is

Risk-to-reward compares the distance from your entry to your stop (the risk, called 1R) with the distance from your entry to your target (the reward). A trade risking 10 points to make 30 is 1:3.

It works together with win rate: at 1:3 you can be right only a third of the time and still roughly break even before costs, while at 1:1 you need to win more than half your trades.

How to spot it

• Set the stop where the trade idea is proven wrong (beyond the zone or swing), not where it feels comfortable.
• Set the target at a realistic level: the next liquidity, zone or swing.
• R:R = (target − entry) ÷ (entry − stop) for a long.

How to use it

• Skip trades where the realistic target gives less than your minimum R:R.
• Track results in R as well as money, so you can compare trades of different sizes.
• The journal works R:R out from your entry, stop and target, so you don't have to.

Common mistakes

• Stretching the target to an unrealistic level to make the R:R look good.
• Moving the stop further away during the trade, which quietly changes 1R.

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