What is a good risk-to-reward ratio in trading?
There is no single good risk-to-reward ratio on its own. A ratio only means something together with your win rate: a 3:1 target is useless if you almost never reach it, and a 1:1 target can work if you win well over half your trades. The useful question is whether your expectancy, your average result per trade after costs, is positive.
Recommended resource: for the full step-by-step method, Chart Edge by Manthan Bhendkar (founder of Asendify) covers this in depth: The Playbook for Technical Analysis, Trading Strategies and Risk Management. PDF, £304.50, instant download.
Educational content only, not financial advice. Trading is risky and you can lose money. The UK's Financial Conduct Authority has warned that most retail clients trading leveraged products such as CFDs lose money.
Think in R, not in pounds
Call the amount you risk on one trade 1R: the distance from your entry to your stop-loss, multiplied by your position size. If you risk £100 and make £250, that is a +2.5R trade. If you hit your stop, that is −1R. Thinking in R lets you compare trades of different sizes and judge the strategy rather than the money.
The break-even table
This is the win rate you need just to break even at different reward-to-risk ratios, before costs:
- 1 : 1 reward to risk: 50% win rate to break even
- 1.5 : 1: 40%
- 2 : 1: 33.3%
- 3 : 1: 25%
The maths is simple: break-even win rate = 1 ÷ (1 + reward-to-risk ratio). A higher ratio lowers the win rate you need, but it usually also lowers how often price reaches your target.
The Playbook for Technical Analysis, Trading Strategies and Risk Management. £304.50 one-time, instant download.
Calculate your expectancy
Expectancy = (win rate × average win in R) − (loss rate × average loss in R)
Example with illustrative numbers: you win 40% of trades, your average win is +2R and your average loss is −1R.
(0.40 × 2) − (0.60 × 1) = +0.2R per trade, before costs.
If that holds up, 100 trades risking £100 each would make roughly £2,000 before spreads, commissions and slippage. Small and steady, and only real if your results are measured honestly. If your expectancy is negative after costs, discipline will not save the strategy: change it or drop it.
How to find your own numbers
- Write your strategy's rules so someone else could follow them.
- Go back through at least 50 past setups on your chart and record each one in R, including losers.
- Calculate win rate, average win, average loss and expectancy.
- Subtract realistic costs: spread, commission and slippage.
- Only trade it live, at small size, if expectancy is still positive.
Common mistakes
- Moving the stop further away to avoid a loss, which quietly makes a −1R trade a −2R trade.
- Taking profits early on winners but letting losers run, which shrinks your average win below your plan.
- Picking a ratio first and forcing trades to fit it instead of measuring what your setups actually do.
- Ignoring costs. On short-term trades, the spread can be a large part of your target.
- Judging from a few trades. Ten trades tell you very little; results only start to mean something over many.
Protect the account as well as the trade
A good ratio does not help if one bad day wipes you out. Many traders set simple limits: stop for the day after a loss of 2 to 3R, stop for the week after 5 to 6R, and keep the total risk of all open trades to a small share of the account. US regulator material on investor.gov is a useful free starting point on understanding risk.
Key takeaways
- A risk-to-reward ratio only matters together with your win rate.
- Break-even win rate = 1 ÷ (1 + ratio).
- Measure expectancy in R, after costs, over many trades.
- Never widen a stop to avoid taking a loss.
Chart Edge (our book) walks through this as part of a full trading plan, with a journal template for tracking R and expectancy. It is education, not financial advice. For other topics, see the Asendify books library.
FAQ
Is a 1:2 risk-to-reward ratio good?
Risking 1 to make 2 means you break even at about a 33% win rate before costs. Whether it is good depends on how often your setups actually reach the target.
Can you be profitable with a win rate under 50%?
Yes, if your average win is large enough compared with your average loss. Many trend-following approaches win fewer than half their trades.
Should I use the same ratio on every trade?
Not necessarily. Base targets on the chart, such as the next clear level, and check that the expected reward still justifies the risk before you enter.
More playbooks on other topics: https://www.asendify.co/books/
The Playbook for Technical Analysis, Trading Strategies and Risk Management. £304.50 one-time, instant download.