How to calculate it
| Risk : reward | Break-even win rate |
|---|---|
| 1 : 1 | 50.0% |
| 1 : 1.5 | 40.0% |
| 1 : 2 | 33.3% |
| 1 : 3 | 25.0% |
| 1 : 4 | 20.0% |
Worked through with real numbers
A stock long at $50.00, stop at $48.50, target at $54.50. Risk is $1.50, reward is $4.50, so the plan is 1:3 and the break-even win rate is 25%.
Over 40 trades of this setup, 14 hit the target and 26 were stopped. That is a 35% win rate, comfortably above 25%:
But suppose you get nervous and close most winners early, so they average +1.9R instead of +3R:
The planned ratio was fine. The realised ratio nearly wiped the edge out. That gap between plan and execution is what a journal is for.
Where traders get it wrong
- Judging by planned ratio only. What matters is the R you actually bank, after early exits and slippage.
- Placing the stop to make the ratio look good. A stop that sits inside normal noise gets hit more, which lowers win rate by more than the ratio gained.
- Targets the market rarely reaches. A 5R target on a pair that moves 1.2 ATR a day may need a week. Check the target against ATR.
- Forgetting the spread. On a tight stop, the spread is a real slice of the risk.
Tracking it in your journal
When a trade has a take-profit, the journal shows its planned R:R, and after the close it reports Avg Risk:Reward across all trades and across winners only. TP Capture % shows how much of the distance to your target your winners actually captured, which is the number that exposes early exits.
See your own Risk-Reward Ratio from real trades
Every figure on this page is more useful when it is yours. The free journal works it out from the trades you log or sync.
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