Risk/Reward Ratio Chart

What is the risk to reward ratio?

The risk to reward ratio compares how much you are risking on a trade against how much you expect to make if the trade reaches your target. For example, if you risk $100 to make $300, your reward to risk ratio is 3:1, so for every $1 you risk you are aiming to make $3 in profit.

The ratio is one of the main factors that decide how often you need to win to stay profitable. A higher reward to risk ratio lets a strategy be profitable at a lower win rate, because each winning trade has a larger impact than each losing trade.

A higher ratio is not automatically better. Larger profit targets are usually harder to reach, which tends to lower the probability of winning. The goal is the right balance between win rate and reward to risk, the balance that creates positive expectancy. Once you know your ratio, the expectancy calculator shows the profit per trade it produces.

How is the risk to reward ratio calculated?

Say you risk $200 on a trade and your profit target is $600. Then $600 ÷ $200 is 3, so your risk to reward ratio is 3:1. You are risking $1 to potentially make $3.

The breakeven win rate formula

The breakeven win rate is how often you need to win just to avoid losing money before costs.

For a 2:1 reward to risk ratio, that is 1 ÷ (1 + 2), which is 1 ÷ 3, or 33.3%. So a 2:1 strategy needs to win about 34% of trades to break even before fees and execution costs. Any win rate above that creates positive expectancy.

Risk to reward examples

A higher reward to risk ratio lowers the win rate you need, but it usually comes with fewer winning trades because larger targets are harder to reach.

How to read this chart

Each row is a different reward to risk ratio. Each column is a different win rate. The chart shows whether that combination produces positive or negative expectancy.

• Green means the combination is profitable over time.
• Amber means it sits close to breakeven.
• Red means it loses money over time.

Find your typical reward to risk ratio, then compare it with your historical win rate. If the combination is green, the strategy has a mathematical edge. If it is not, you need to improve one or more of these factors.

• Increase your win rate
• Improve your reward to risk ratio
• Reduce your average losses
• Increase your average winners

How reward to risk affects strategy design

A high reward to risk ratio lets you be profitable with fewer winning trades. A 3:1 strategy only needs to win 25% of trades to break even before costs. But reaching a 3:1 or 5:1 target usually requires price to move further in your favor, so the strategy tends to have fewer winners and longer losing streaks.

A lower reward to risk strategy may produce more frequent winners but needs a higher win rate. Neither approach is automatically better. The right ratio depends on the strategy, the market conditions, and your ability to execute it consistently.

Frequently asked questions

What does risk to reward mean in trading?

Risk to reward compares the amount you risk on a trade with the profit you are targeting. If you risk $100 to make $300, your reward to risk ratio is 3:1, so the potential reward is three times the amount at risk.

How do I calculate my risk to reward ratio?

Divide your potential profit by your potential loss. For example, a $500 target with a $100 stop is $500 ÷ $100, which is a 5:1 reward to risk ratio.

What is a good risk to reward ratio?

There is no universal best ratio, because it depends on the strategy. A 2:1 ratio is a common benchmark because it allows profit with a win rate above roughly 34%. Some strategies work with lower ratios and higher win rates, others with higher ratios and lower win rates. What matters is that the ratio and the win rate together produce positive expectancy.

Why does a higher reward to risk ratio require a lower win rate?

Because each winner makes more compared with each loser. With a 5:1 ratio, one winning trade can cover five losing trades. The trade-off is that larger targets are reached less often, since price has to move further, so higher reward to risk strategies tend to have lower win rates.

Is a high reward to risk ratio always better?

No. A high ratio can look attractive, but if the target is unrealistic and the win rate falls too low, the strategy can still have negative expectancy. A realistic 2:1 strategy you execute consistently can beat an unrealistic 10:1 strategy that rarely reaches its target. The best ratio is the one that creates positive expectancy and can be executed consistently.

Can a strategy have both high reward to risk and a high win rate?

Yes, but it is uncommon. Some strategies manage both in specific conditions like strong trends or high momentum. Those conditions are not always present, and performance can change when the market changes. A strong system focuses on repeatable execution and positive expectancy rather than chasing the highest possible ratio.