What Is a Good Risk-Reward Ratio?
What risk-reward ratio should you aim for, how it ties to your win rate, and how to use it to filter trades. With a simple breakeven win-rate table.
Educational content, not financial advice. Trading involves risk — always verify figures and consult a professional before trading.
“Always trade at least 2:1” is one of the most repeated rules in trading — and one of the most misunderstood. The risk-reward ratio only means something when you pair it with your win rate. This guide shows how the two connect and how to use the ratio to filter trades before you risk a cent.
What the ratio actually measures
Your reward-to-risk ratio compares how much you stand to make against how much you’ll lose if the stop hits:
R:R = (target − entry) ÷ (entry − stop) (for a long)
Entry $100, stop $95 (risk $5), target $110 (reward $10) → ratio 2:1. You’re risking one to make two. The Risk/Reward Calculator computes this, plus the dollar amounts, from your three prices.
Ratio and win rate are two sides of one coin
A higher ratio lets you be profitable while winning less often. The minimum win rate just to break even is:
Breakeven win rate = 1 ÷ (1 + ratio)
| Risk : Reward | Breakeven win rate |
|---|---|
| 1 : 1 | 50% |
| 1 : 1.5 | 40% |
| 1 : 2 | 33% |
| 1 : 3 | 25% |
| 1 : 5 | 17% |
At 1:3, you can be wrong three times out of four and still break even. At 1:1 you must win more than half your trades just to tread water. That’s why higher ratios are forgiving — they buy you room to be wrong.
So what’s “good”?
There’s no universal number, but useful guidelines:
- Below 1:1 — avoid unless your win rate is genuinely high and proven. You’re giving yourself almost no margin for error.
- 1:2 and up — the practical sweet spot for most swing traders. You only need to win about a third of the time to come out ahead.
- 1:3+ — great if the setup supports it, but don’t force a distant target just to hit a ratio. An unrealistic target you never reach isn’t a 3:1 trade — it’s a missed trade.
The honesty test
The ratio is only as good as your inputs. Two common ways traders fool themselves:
- Moving the stop further out to improve the ratio on paper — which just increases real risk.
- Setting a target the price realistically won’t reach in your timeframe.
Use levels you’d actually trade — recent support/resistance, a measured move, an ATR multiple — not numbers reverse-engineered to look good.
Expectancy: the number behind the ratio
Ratio and win rate combine into expectancy — the average dollar outcome per trade. This is the real measure of whether a strategy makes money:
Expectancy = (win rate × average win) − (loss rate × average loss)
Take a 1:2 trade that risks $100 to make $200, with a 40% win rate:
- Wins: 0.40 × $200 = +$80
- Losses: 0.60 × $100 = −$60
- Expectancy = +$20 per trade
Positive expectancy means the edge is real; over many trades you come out ahead even though you lose 6 times in 10. Now drop the win rate to 30%:
- Wins: 0.30 × $200 = +$60
- Losses: 0.70 × $100 = −$70
- Expectancy = −$10 per trade — a losing system, despite the “good” 1:2 ratio.
That’s the whole point: a high ratio is only an edge if your win rate clears the breakeven line for it. Track both numbers from your own trade log rather than trusting a rule of thumb.
How timeframe changes the ratio
The “right” ratio shifts with how you trade:
- Scalpers / day traders often run closer to 1:1 or 1:1.5 with a high win rate, because tight targets get hit reliably intraday.
- Swing traders usually want 1:2 to 1:3, accepting a lower win rate in exchange for bigger winners that play out over days or weeks.
- Trend/position traders may aim for 1:5+, knowing most trades are small losers and a few large winners carry the whole year.
None of these is “better” — they’re different ways to land on positive expectancy. What breaks accounts is mixing them up: taking a 1:1 win rate with a 3:1 trader’s patience, or vice versa.
Common risk-reward mistakes
- Counting the ratio before the stop. Decide where you’re wrong first; the ratio is an output of entry, stop and target — not an input you dial in.
- Ignoring costs. Commissions and spread eat into the reward leg. On small trades, a “2:1” can really be 1.6:1 after fees — check your true break-even price.
- Cutting winners early / letting losers run. This silently destroys your realized ratio even when your planned ratio looked great. Honor the levels.
- Cherry-picking the timeframe. A target that’s 3:1 on the daily chart but needs three weeks may not fit a swing plan — match the target to your horizon.
Putting it together
A strong process: find a setup, set the stop where your thesis is wrong, set a realistic target, then check the ratio. If it clears your minimum (say 1:2) and your win rate supports positive expectancy, size the trade in the Position Size Calculator. If it doesn’t, pass — there’s always another trade.
Key takeaways
- R:R is meaningless without your win rate; breakeven win rate = 1 ÷ (1 + ratio).
- 1:2 is a reasonable default minimum for swing trading.
- Higher ratios forgive lower win rates — 1:3 breaks even at a 25% win rate.
- Never inflate the ratio by widening stops or inventing unreachable targets.
Next steps
- Check any setup in the Risk/Reward Calculator.
- Place exact stops and targets with the Stop Loss / Take Profit Calculator.
- Size the trade with the Position Size Calculator.