The ratio
Risk is the distance from your entry to your stop loss. Reward is the distance from your entry to your take profit. The ratio between them is written risk:reward — a trade risking 20 pips to make 40 is 1:2.
R:R = (take profit − entry) ÷ (entry − stop loss)
Why it matters more than win rate
A trade with a 1:2 ratio can be wrong more often than it is right and still come out ahead:
| Win rate | R:R | Result over 100 trades (risking 1R each) |
|---|---|---|
| 40% | 1:2 | +20R |
| 50% | 1:1 | 0R |
| 60% | 1:0.5 | −10R |
The third row is the trap: a strategy that "wins 60% of the time" and loses money, because each loss is twice the size of each win. Most beginners drift toward that row without knowing it, by taking profits early and letting losses run.
Expectancy
expectancy = (win rate × average win) − (loss rate × average loss)
Measured in R, this is the average result of one trade. Positive expectancy over a large sample is the only thing that makes a strategy worth trading. Your journal is where you find the real number.
Planned versus realised
The ratio you planned is not the ratio you got. Moving the stop closer "to give it room", closing at 1:1 "to be safe", adding to a loser — each one turns a planned 1:2 into a realised 1:0.8. Track both columns.
Summary
Risk:reward is the size of the win relative to the size of the loss. Combined with win rate it gives expectancy, and expectancy — not win rate — is what pays.