Risk Management

Risk-Reward Ratio: How to Think in R

The risk-reward ratio measures how much you stand to gain relative to how much you are willing to lose.

Key rules

1. Always calculate R:R before entry, not after
2. Required R:R depends on win rate: lower WR requires higher R:R
3. Never enter a trade below your minimum required R:R threshold
4. Target placement should be at the next logical structure level
5. A great setup with poor R:R is still a trade to skip

A 2:1 R:R trade means you target $2 for every $1 risked. If your win rate is 50%, a minimum 2:1 R:R is required to be profitable after costs. At 40% win rate, you need 3:1 or better.

Always calculate R:R before entry. If the nearest logical target does not deliver the required R, skip the trade — regardless of how good the setup looks.