Why the risk/reward ratio matters
Risk/reward compares what you stand to lose against what you're aiming to make. Risk one dollar to make three and you have a 1:3 ratio. The reason it's so important: a better ratio dramatically lowers the win rate you need to stay profitable.
| Risk / reward | Break-even win rate |
|---|---|
| 1 : 1 | 50% |
| 1 : 2 | ~34% |
| 1 : 3 | 25% |
This is the math behind "cut your losers, let your winners run." It's also why logging your planned stop and target matters — without them, you can't tell whether you actually took good trades or just got lucky.
Ratio isn't everythingA great risk/reward on a setup you rarely win is still a losing plan. Pair this with your real win rate from your journal to know your true edge.
Next, size the trade with the position size calculator, or read Risk management 101.