Risk-Reward Ratio

Glossary · Quant & Stats

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.

"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."

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.

Pattern trade plans, target against stop

Related jargon

Questions

What is Risk-Reward Ratio in crypto trading?

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.

How would a trader say it?

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.

Part of the Crypto Jargon glossary — every term, decoded the way a trader would say it.

Crypto Jargon

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