What Is the Reward-to-Risk Ratio?
The reward-to-risk ratio (also written R:R, or risk-reward) compares how much a trade could make if it reaches its target with how much it would lose if it hits its stop. It's decided before you enter, and it's one of the few things in trading you fully control.
The formula
Reward-to-risk = (target − entry) ÷ (entry − stop) for a long trade.
Example: buy at $50, stop at $48, target at $56. Risk is $2, reward is $6, so the ratio is 3:1.
Why it matters: the win-rate math
The ratio sets how often you need to be right to break even (before costs):
| Reward:risk | Break-even win rate |
|---|---|
| 1:1 | 50% |
| 1.5:1 | 40% |
| 2:1 | 33% |
| 3:1 | 25% |
The break-even win rate is 1 ÷ (1 + ratio). A trader taking 2:1 trades who wins 45% of the time is profitable; one taking 1:1 trades with the same hit rate is not. That's why many strategies set 2:1 as a minimum.
Thinking in R
Traders often describe results in "R," one unit of planned risk. If you risk $200 per trade, a +2R trade makes $400 and a −1R trade loses $200. Measuring in R makes results comparable across different stocks and position sizes, and it exposes problems quickly: if your average loss is −1.6R, you're letting stops slip.
The catch
A high ratio is easy to manufacture on paper by placing the stop very tight or the target very far away. Both make the ratio look better and the trade worse:
- A stop inside normal daily noise gets hit more often, so the real win rate collapses.
- A target beyond any realistic level rarely gets reached.
The ratio only means something when the stop sits where the setup is actually invalidated and the target sits at a level price has a real reason to reach, like a prior high.
From ratio to position size
R:R tells you whether a trade is worth taking; position size tells you how much. A common approach is fixed-fractional sizing: decide what fraction of your account you'll risk per trade (many use 0.5–2%), then divide that dollar amount by the distance to your stop. That's general math, not advice for your situation.
How Zelos uses it
Reward-to-risk is a scored component of every Zelos strategy, and every alert shows its entry, stop, target and ratio. You can practice building trades with a planned ratio in Chart Replay, which scores you in R.
Practice it freeChart ReplayPractice planning R:R in Chart Replay on real historical charts, with the ticker hidden. →Frequently asked questions
What is a good reward-to-risk ratio?
Many swing traders use 2:1 as a minimum, which means you break even winning only a third of the time. What is good ultimately depends on your real win rate with realistic stops and targets.
Is risk-reward the same as reward-to-risk?
They describe the same comparison written in opposite orders. A 1:3 risk-reward is the same as a 3:1 reward-to-risk.
Should I ever take a trade under 1:1?
Only if the strategy has a genuinely high win rate. For most swing setups, trades under about 1.5:1 require being right too often to be worth it.