{"slug":"risk-reward","term":"Risk-Reward Ratio","category":"Quant & Stats","definition":"Risk-reward ratio compares what a trade risks against what it targets: risking $100 to make $300 is 1:3. Together with win rate it decides profitability — at 1:3 a trader can lose 70% of trades and still come out ahead. The risk side means the distance to a hard stop-loss, not hope.","street":"Before entry, know two numbers: where you're wrong and what you get paid for being right — if the second isn't bigger, skip it.","depth":["For a long, R equals (target minus entry) divided by (entry minus stop). The stop belongs at the price that proves the idea wrong — below the swing structure, not at a tidy dollar amount — and the target at a level the market actually respects. The breakeven table worth memorizing: 1:1 needs a 50% win rate, 1:2 needs 33%, 1:3 needs 25%. Track realized R too — partials taken early and stops moved to entry quietly shrink the R you planned.","Retail runs the ratio backwards — tight target, wide or absent stop — so wins pay 0.5R while losses cost 3R, and the high win rate feels great until the math collects. The other trap is manufacturing fake R: tucking a stop just under an obvious equal-lows wick makes the ratio look pretty and parks you exactly where the stop hunt goes shopping. If the honest invalidation level drops the trade under about 1:1.5, the entry is the problem — skip it or wait for a better price."],"live":{"label":"Pattern trade plans, target against stop","href":"/patterns"},"related":["win-rate","expectancy","stop-hunt"]}