Glossary

Risk-reward ratio (R:R)

The ratio of potential profit at the target to potential loss at the stop. A 1:2 ratio means 2 units of profit for 1 unit of risk; together with win rate it determines expectancy.

A high R:R isn't good on its own: a strategy with a 1:5 ratio and a 20% win rate has the same expectancy as one with a 1:1 ratio and a 60% win rate (+0.2R per trade). What matters is the two together.

Thinking in units of "R" (a trade of +2R, -1R) gives you a journal that is independent of money amounts and comparable across trades.

Related terms

Where it appears in the guides

Guides whose text uses this term; most frequent first.