Risk Reward Ratio Guide
Understand risk-reward, win rate, expectancy and trade filtering.
Compare distances consistently
A reward-to-risk ratio compares potential gain at a target with potential loss at an invalidation level. For a simple linear long, reward distance is target minus entry and risk distance is entry minus stop. A favorable ratio does not make the target likely.
A 2:1 example
Entry at 100, stop at 95 and target at 110 give reward distance 10 and risk distance 5, or 2:1. Before costs, a strategy with fixed 2R wins and 1R losses needs a win rate above one third for positive average expectancy.
Include real outcomes
Fees, slippage, partial exits and missed fills change realized results. Track average wins, average losses and all qualifying observations instead of only the best examples. A theoretical target is not a realized profit.
Include costs in both outcomes
Hypothetical worked example. An entry at 100, stop at 95 and target at 110 produces 5 units of gross risk and 10 of gross reward: 2 to 1. If total fees and slippage are 1 per unit in each outcome, net reward becomes 9 and loss becomes 6, reducing the ratio to 1.5 to 1.
What win rate breaks even?
Under those fixed hypothetical outcomes, 6/(9+6) = 40%, before any additional costs. This is arithmetic for an assumed payoff distribution, not a forecast of how frequently your target will be reached.
Verify the assumptions
Check the input window, fees and data availability before applying this example. For the exact software behavior and coverage limits, read the scanner methodology. Examples explain arithmetic and interpretation; they are not historical performance claims.