Risk-Reward Ratio Explained: The Win Rate You Need at 1R, 2R and 3R

R is the single most useful unit in trading because it strips out account size, contract size and currency and leaves only the shape of the strategy. One R is whatever you risked on the trade. If your stop was 60 dollars away and the trade paid 120 dollars, that is 2R — and it is 2R whether you were trading one micro or forty minis.

Defining R properly

R is the distance from entry to stop, measured in money, at the size you actually traded. It is not the distance to your stop in points, and it is not a percentage of account. Converting to money at your real position size is what makes R comparable across instruments — a 1R loss on gold and a 1R loss on the Nasdaq are the same event in your equity curve, which is the whole reason the unit exists.

Everything downstream follows from that definition. A target placed at twice the stop distance is a 2R target. A trade closed at half the stop distance in profit is a 0.5R win. A stop that gets hit is a minus 1R, every time, which is only true if you honour the stop — the trader who widens a stop mid-trade has stopped measuring in R and no longer knows what their strategy does.

The break-even win rate table

For a strategy with a fixed reward-to-risk ratio R and no costs, the win rate required to break even is 1 divided by (1 plus R). That formula produces the only table most traders need:

• 0.5R targets — need a 66.7 percent win rate to break even.
• 1R targets — need 50 percent.
• 1.5R targets — need 40 percent.
• 2R targets — need 33.3 percent.
• 3R targets — need 25 percent.
• 5R targets — need 16.7 percent.

Read down that list and the appeal of asymmetric targets is obvious: at 3R you can be wrong three times out of four and still be flat. Read it again and the catch appears. At 3R you will be wrong three times out of four, which means long losing streaks are not a sign that something has broken — they are the normal texture of the strategy, and most traders abandon a perfectly good 3R system during one.

Expectancy is the number that actually matters

Break-even win rate tells you where the line is. Expectancy tells you how far above it you are, in R per trade: expectancy equals (win rate times average R won) minus (loss rate times average R lost). A system winning 40 percent of the time at 2R has an expectancy of (0.40 times 2) minus (0.60 times 1), which is 0.80 minus 0.60, or plus 0.20R per trade.

Twenty percent of one R per trade sounds thin. Over 200 trades it is 40R, and if 1R is 1 percent of the account that is a meaningful year. This is why expectancy beats win rate as a headline metric — a 70 percent win rate at 0.4R has an expectancy of (0.70 times 0.4) minus (0.30 times 1), which is 0.28 minus 0.30, or minus 0.02R. It feels wonderful and loses money.

Why a high ratio is not automatically better

The ratio is set by where you put the target, and the target has to be somewhere price can plausibly reach. Doubling the target from 2R to 4R does not double expectancy; it raises the reward per winner and lowers the hit rate, and whether that trade is worth making depends entirely on how the hit rate degrades. If moving from 2R to 4R takes your win rate from 40 percent to 15 percent, expectancy falls from plus 0.20R to (0.15 times 4) minus (0.85 times 1), which is minus 0.25R. The more attractive-looking ratio is the losing one.

The only way to know is to measure both numbers together on your own results, over enough trades to mean something. Ratio without win rate is a marketing statistic.

Practical ways to use R day to day

1. 01Log every closed trade in R, not in currency. Your journal becomes instantly comparable across instruments and across account sizes.
2. 02Set a daily and weekly loss limit in R — three R down and the day is over — rather than in currency, so the limit scales automatically as the account grows.
3. 03Judge partial exits in R terms. Taking half off at 1R and trailing the rest converts a clean 2R into a blended figure, usually somewhere near 1.5R, and that blended number is what belongs in your expectancy maths.
4. 04Review streaks against the break-even table before changing anything. A 3R system losing six in a row is a 17.8 percent probability event at a 25 percent win rate — unpleasant, entirely normal, and not evidence of edge decay.

The discipline that R enforces is the reason to adopt it. Once every trade is measured against the amount risked, position size becomes a mechanical output of your stop distance rather than a feeling about conviction, and the question shifts from how much do I want to make to how much am I risking to find out.