RRR: Reward-to-Risk Ratio
Also known as: risk-reward ratio, R:R, R-multiple
What is it?
The reward-to-risk ratio compares how much you stand to gain on a trade against how much you are putting at risk. You measure the reward as the distance from your entry price to your take-profit target, and the risk as the distance from your entry to your stop loss, then express them as a ratio. For example, if you risk 20 pips to your stop and aim for 60 pips to your target, your reward-to-risk is three to one, often written 3:1. The idea matters because it changes how you judge whether a strategy can actually make money over time.
Beginners often focus only on how often they win, but win rate alone tells you little. If your winners are much bigger than your losers, you can be profitable even when you lose more trades than you win. With a 3:1 ratio, winning just one trade out of three covers the two losses before costs. Conversely, a strategy that wins most of the time but risks far more than it targets can be wiped out by a single bad trade.
That is why you should always read reward-to-risk together with the historical win rate, never one without the other. This is also the honest way to talk about trading outcomes: not as guaranteed profit, but as a balance of probabilities and payoffs where your capital is genuinely at risk. Used well, reward-to-risk lets you filter for trades worth taking and skip ones where you would be risking a lot to make a little, which over many trades is one of the biggest drivers of whether you end up ahead.
Why it matters: It is what lets a strategy stay profitable even with a modest win rate, because winners are larger than losers; we describe outcomes this way rather than as guaranteed profit.
Reward-to-risk = take-profit distance / stop-loss distance
Reward-to-risk and win rate together determine whether a strategy is viable at all.
Real-world example
Risking 20 pips to make 60 is a 3:1 reward-to-risk, so winning just one trade in three breaks even before costs.
How SignalBots handles it
Each SignalBots signal exposes its reward-to-risk so you can filter for setups that fit your own threshold across every surface. See /risk-warning.
Pro tip
Judge a signal feed by its reward-to-risk alongside its historical win rate - one number without the other is misleading.
Common pitfalls
Chasing a high win rate from trades that risk far more than they target, which a single loss can wipe out.
Frequently asked questions
What is a sensible reward-to-risk ratio?
Many systematic traders look for at least 1.5:1 to 2:1, meaning they aim to gain at least one and a half to two times what they risk. The right level depends on the strategy's historical win rate, not a fixed rule.
If my reward-to-risk is high, will I make money?
Not by itself. A high ratio helps, but you also need a reasonable win rate; the two work together. A 5:1 ratio means little if almost none of those trades reach the target. Capital is always at risk.
Why do you say to read it with win rate?
Because either number alone is misleading. A high win rate from trades that risk far more than they target can be erased by one loss, and a great ratio with a tiny win rate may never pay off. Together they show whether a strategy is viable.
How do I calculate it for a signal?
Divide the distance from entry to take profit by the distance from entry to stop loss. If the target is 60 pips away and the stop is 20 pips away, that is 60 divided by 20, or 3:1.
Does a good ratio mean a trade is low risk?
No. Reward-to-risk describes the shape of a single trade's payoff, not its safety. Every trade can still lose the full risked amount, and past results never guarantee future ones.
Trading involves substantial risk of loss. Historical and backtested results do not guarantee future performance. Read the full risk warning.