Ask most new traders what makes a strategy good, and they'll answer with a win rate. Ask a professional, and they'll ask you a different question first: what's your risk/reward ratio? The two numbers only mean something when you look at them together.
Risk/reward ratio (often written R:R) compares how much you stand to lose if a trade fails against how much you stand to gain if it succeeds. A 1:2 risk/reward ratio means you're risking $1 to potentially make $2. A 1:3 ratio means risking $1 to potentially make $3, and so on.
It's calculated from your stop-loss and take-profit distances relative to your entry:
Risk/Reward Ratio = Distance to Take-Profit ÷ Distance to Stop-Loss
Entry at 1.1000, stop-loss at 1.0950 (50 pips), take-profit at 1.1150 (150 pips) → Risk/Reward = 150 ÷ 50 = 1:3.
Every risk/reward ratio has a corresponding win rate below which the strategy loses money over time, and above which it makes money — regardless of what "feels" like a good win rate in isolation.
Break-Even Win Rate = Risk ÷ (Risk + Reward)
| Risk/Reward Ratio | Break-Even Win Rate | What it means |
|---|---|---|
| 1:1 | 50% | Need to win more than half your trades |
| 1:2 | 33.3% | Can lose two out of every three trades and still break even |
| 1:3 | 25% | Can lose three out of every four trades and still break even |
| 2:1 | 66.7% | Need to win two out of three trades just to break even |
| 3:1 | 75% | Need to win three out of four trades just to break even |
This table is the entire reason experienced traders ask about risk/reward before they ask about win rate. A strategy with a 1:3 ratio only needs to be right 25% of the time to break even — every win above that threshold is real profit. A strategy with a 3:1 ratio (risking three times what you're trying to make) needs to be right 75% of the time just to tread water.
A trader wins 70% of trades. Sounds excellent. But their risk/reward ratio is 3:1 — they risk $300 to make $100 on every trade, chasing a high win rate with tight take-profits and wide stops.
Over 10 trades: 7 wins × $100 = +$700. 3 losses × $300 = −$900.
Net result: −$200, despite winning 70% of the time. The break-even win rate for a 3:1 ratio is 75% — this trader's 70% falls just short of it, and the strategy bleeds money slowly even though it "feels" successful most of the time.
This is precisely why a strategy's win rate, viewed alone, tells you almost nothing about whether it's profitable. It has to be evaluated against the risk/reward ratio it's paired with. Our Risk/Reward Calculator computes the ratio and break-even win rate together for exactly this reason.
If 1:3 ratios only need a 25% win rate to break even, why doesn't everyone just trade for huge reward multiples? Because higher risk/reward setups are usually harder to execute psychologically — you'll be wrong more often than you're right, even in a genuinely profitable system, and long losing streaks are statistically normal, not a sign something is broken.
Even in a healthy 1:3 strategy sitting right at its 25% break-even win rate, the odds of any specific run of 5 consecutive trades all being losses is about 24% (0.75⁵). Over a longer sequence of trades, a streak that length becomes even more likely to show up at least once. A 5-loss streak isn't a signal the strategy stopped working — it's a statistically ordinary feature of trading at that win rate. This is exactly the situation that tempts revenge trading — reacting emotionally to a normal, expected losing streak.
Risk/reward ratio tells you whether a strategy's math works over a large enough sample. It says nothing about how much of your account any single trade puts at risk — that's a separate decision, covered in our position sizing guide. A strategy can have an excellent 1:3 risk/reward ratio and still blow up an account if each trade risks 20% of the balance. The two concepts have to be used together, not as substitutes for each other.
Check your setup's math before you trade it. Enter your entry, stop, and target to see the exact ratio and break-even win rate.
Open the Risk/Reward Calculator →