Using the reward-to-risk ratio like a professional

Play the numbers game

Achieving positive trading results doesn’t always depend on having a high win rate. Think about win size: how much you gain when you’re right (and how little you lose when you’re wrong.)

Let’s use the example of a trader who uses a 3:1 reward-to-risk ratio. He gains 3 in winning trades, and loses 1 when he’s wrong.

At this level of reward-to-risk, the trader can have a win rate of 30% and still be profitable.

To prove it, here are the results for that 3:1 trader who wins 3 out of every 10 trades. Because of the favourable R:R, the trader’s account is up even with a win rate that may be considered low.

Trade NumberResultGain/Loss
1Loss-1
2Loss-1
3Loss-1
4Loss-1
5Loss-1
6Loss-1
7Loss-1
8Win+3
9Win+3
10Win+3
TOTAL:+2

The Relationship Between Reward-to-Risk Ratio and Win-Rate

This table shows the minimum R:R and win-rate needed for breakeven.

Use it as a helpful reminder that you can achieve positive results even with a small number of wins, as long as they outweigh the impact of losses.

Reward to Risk (R:R)1:11.5:12:12.5:13:14:15:110:120:1
Breakeven Win Rate50%40%34%29%25%20%17%10%5%

Reading the table from left to right:

If you enter trades with a 1:1 reward-to-risk ratio, your win-rate needs to be better than 50% to be profitable.

If you enter trades with a 1.5:1 reward-to-risk ratio, your win-rate needs to be better than 40% to be profitable.

If you enter trades with a 2:1 reward-to-risk ratio, your win-rate needs to be better than 34% to be profitable.

And so on.