The risk reward ratio, or RRR, is the ratio of your average win to your average loss. It says how much your winners weigh against your losers, and it is never read without your win rate, because those two figures alone decide whether a system wins.
The levels of a trade
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The risk reward ratio, also called the risk and reward ratio, comes in two forms that are often confused. The planned ratio is the one you decide before entering, by placing your stop and target: "I risk 1 to aim for 2". The observed ratio is what your trades actually produced, average win divided by average loss. Journals display the second, and it is what FTMO and MetaStats call Average RRR.
The two rarely match, and that gap is itself information. A trader who systematically aims for 1:3 and observes a ratio of 1.2 is not holding their targets: they exit early, out of comfort, and their journal proves it better than any impression could.
The ratio is written either 1:2 or 2, and it is always read as reward over risk: a ratio of 2 means the average win is worth twice the average loss.
RRR = average win ÷ |average loss| Minimum win rate = 1 ÷ (1 + RRR)
For a single trade, the planned ratio is (target − entry) ÷ (entry − stop), on a long.
Both formulas are useful but measure different things: the first judges a system on its history, the second judges a trade before taking it.
The win rate threshold is a break-even point before fees. You need to clear it comfortably to cover commissions and spread.
| Observed RRR | Minimum win rate | Reading |
|---|---|---|
| 0.5 | 67% | Demanding. Typical of high-accuracy scalping. |
| 1 | 50% | The most intuitive, and the most exposed: a dip in accuracy tips it over. |
| 2 | 33% | Comfortable zone: you can lose two times out of three and still win. |
| 3 and above | 25% | Trend following. Few winners, but they carry everything. |
Place your win rate and your RRR on this table: you know immediately whether your system wins, without looking at your P&L. It is the fastest check a journal allows, and it takes ten seconds to redo each month.
Then compare your planned ratio to your observed one. If they diverge sharply, the problem is neither your entry nor your market: it is your exits, and that is the good news, because it is the one thing you fully control.
Planned 3, observed 1.62. The gap does not come from the market but from the exits: targets are not held. The real break-even threshold is therefore not 25% but 38%.
The risk reward ratio calculation for a single trade is done before entering, from the distance to the stop and the distance to the target. In this page's example, 3 at risk for 9 aimed for: a ratio of 3, which needs only 25% accuracy to break even.
That calculation does not say whether the target will be reached. It only says what win rate you will need to hold for this kind of trade to pay, which is already a lot.
The observed ratio, average win divided by average loss, says what your trades actually produced. The gap with the planned ratio measures exit discipline better than any impression can.
What counts in risk reward ratio trading is the observed figure. Planned 3, observed 1.62: targets are not held, and the real break-even threshold moves from 25% to 38%. That is the figure that counts from here on.
The first flaw is the writing order. The risk/reward ratio is often written risk first, 1:3, while it is computed reward over risk, 3. Depending on the tool, a "ratio of 0.33" and a "ratio of 3" describe the same trade.
The second is the planned ratio shown as a result. Aiming for 1:3 does not produce an RRR of 3; only the ratio observed over history says what the exits actually delivered.
The third is the ratio without probability. Moving the target further improves the displayed ratio and mechanically lowers win rate, and a ratio alone never says which effect wins.
The classic mistake. Confusing it with the R-multiple. RRR compares two currency averages and ignores your stop; R ties each trade to the risk actually taken. Two traders with the same RRR can have opposite R values, and R is what decides whether the account survives.
| Indicator | Formula | What it measures | When to use it |
|---|---|---|---|
| RRR | average win ÷ average loss | How winners weigh against losers | Setting targets and stops |
| R-multiple | result ÷ risk taken | Each trade in units of risk | Judging money management |
| Win rate | winners ÷ total | How often you win | Knowing the threshold to clear |
| Profit factor | Σ gains ÷ |Σ losses| | The ratio of totals | Judging the whole system |
Calculate RRR on your history first: if you aim for 1:3 and get 1.6, pushing the target further changes nothing. The problem is the exit, and that is what to fix first.
Your average MFE says how far your trades go before turning. A target beyond it is almost never hit, a target short of it leaves money on the table.
Cutting average loss raises the ratio as surely as raising average win, and it is much easier: you only have to avoid widening a stop already placed.
On a single trade: divide the distance from your entry to your target by the distance from your entry to your stop. On a history: divide your average win by your average loss. The first answers before entering, the second judges what you actually produced.
The one that, crossed with your win rate, clears the 1 ÷ (1 + RRR) threshold. A ratio of 1 is fine if you win 60% of the time; a ratio of 3 is required if you only win 30%. The "minimum 1:2" rule you read everywhere has no basis: it ignores half the equation.
It is, from 33% accuracy upwards, fees excluded. In practice you need to clear 36 to 38% to cover commissions and spread. Below that, the system loses despite a ratio everyone considers acceptable.
Because targets are not held, in almost every case. Exiting before the target cuts average win without cutting average loss, so the ratio falls. A journal shows it in one line: compare your average win to your average MFE.
RRR compares two currency averages, average win and average loss, without looking at the stop. R-multiple ties each trade's result to the risk actually taken, that is the distance to the stop. Two traders with the same RRR can have very different R values, and R is what judges money management.
In Tradoshi, the RRR shown is the observed ratio: average win divided by average loss, on the net. It has its own card on the Dashboard, RRR (win/loss), and its line in the Reports screen, under the name Win/loss ratio.
The reading in units of risk sits next to it: Average realized R in Reports and the Average R (SL) card on the Dashboard, computed on trades carrying a stop. Average MFE, in the same screen, is used to set targets as described above.
To go deeper on this: read the full guide. Every term is gathered in the glossary.