Risk management
Risk/Reward Ratio: What's Actually Good?
By MarketsBench · Published · 1 min read
Draft outline — the full guide is being written.
A risk/reward ratio compares what a trade can lose against what it can make — and a "good" ratio depends entirely on how often your strategy wins.
What risk/reward ratio actually measures
Draft to cover: reward ÷ risk from entry, stop and target; R multiples.
The breakeven win rate
Draft to cover: breakeven win rate = 1 ÷ (1 + R:R); table for 1:1, 2:1, 3:1.
Why 3:1 can still lose money
Draft to cover: expectancy = (win% × avg win) − (loss% × avg loss); a 3:1 ratio at a 15% win rate is negative expectancy.
What to target in practice
Draft to cover: matching ratio to strategy type; why forcing wide targets backfires; auditing your own numbers.