What R:R actually means
Risk-to-Reward ratio compares how much you stand to lose versus how much you stand to gain on a single trade. A 1:2 R:R means you're risking $100 to make $200. If your stop is 20 pips and your target is 40 pips, your R:R is 1:2.
This single number fundamentally changes the mathematics of trading. At 1:2 R:R, you only need to be right 34% of the time to break even. At 1:3, you need to be right 25% of the time.
Planned vs realised R:R
The most important distinction in R:R analysis is between what you planned and what actually happened. Most traders set a 1:2 target but exit at 1:0.8 because they get nervous. Their actual R:R is dramatically worse than their plan.
Tracking both numbers reveals this gap. If your planned R:R is consistently 1:2 but your realised R:R is 1:0.9, the problem is exit psychology, not setup selection.
How to improve your R:R
- Let winners run — set a target and don't move it forward (toward you)
- Tighten entries — a better entry gives you a wider reward relative to a fixed stop
- Use partials thoughtfully — taking 50% at 1R and letting the rest run to 3R averages 2R realised
- Review your MFE data — if trades regularly run past your target before reversing, your target is too conservative
Quick exercise: Export your last 50 trades. Calculate the average realised R:R. Compare to what you thought you were achieving. For most traders, the gap is significant — and closing it alone can transform overall P&L.