What Is Risk/Reward Ratio?
The Risk/Reward Ratio (RR) is the relationship between the risk taken on a trade and the expected potential return. If you risk $100 to gain $200, your RR is 1:2.
How to Calculate Risk/Reward
RR = Distance to target ÷ Distance to stop
Example on EUR/USD: entry 1.0850, stop 1.0820 (30 pips), target 1.0910 (60 pips). RR = 60 ÷ 30 = 1:2.
What Is the Minimum RR to Use?
Never accept a trade with an RR below 1:1.5. The ideal for most forex styles is between 1:1.5 and 1:3.
RR and Win Rate: The Breakeven Table
- RR 1:1 → requires more than 50% win rate
- RR 1:1.5 → requires more than 40%
- RR 1:2 → requires more than 33%
- RR 1:3 → requires more than 25%
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