Risk/Reward Ratio Explained
Why risk/reward ratio is the foundation of all profitable trading — regardless of win rate.
Risk/reward ratio is the relationship between potential loss and potential gain. Combined with win rate, it determines whether any strategy is actually profitable long-term.
Calculating R:R
R:R = Potential Profit ÷ Potential Loss. Risk $100 to make $300 = 3:1 R:R.
- Entry: $100
- Stop Loss: $97 (risk = $3 = 3%)
- Take Profit: $109 (reward = $9 = 9%)
- R:R = $9 ÷ $3 = 3:1
Minimum R:R by Win Rate Needed to Break Even
- 1:1 R:R → Need 50%+ wins just to break even
- 2:1 R:R → Need only 34% wins to break even
- 3:1 R:R → Need only 25% wins to break even
- Nezsig target: 2:1 minimum, with 60%+ win rate = consistently profitable
Tip
If a trade doesn't offer at least 2:1 R:R, skip it. Missing a trade costs nothing. Taking a bad R:R trade costs real money.
Why Traders Ignore This
Emotion overrides logic. When a trade feels certain, traders accept tiny rewards for large risks. "This is definitely going to $200 so I'll set TP at $105 with SL at $90" — that's 1:1 R:R on a "sure thing." This is how professionals get poor.
Interactive Calculators
Position Size Calculator
Calculate risk-correct size for any trade
Risk Amount
$100.00
Position Size
$5000
Margin Needed
$1000.00
Formula: Risk Amount ÷ Stop Loss % = Position Size
Risk / Reward Calculator
Verify R:R before entering any trade
Risk / Reward Ratio
4.00:1
Excellent — take this trade
Risk
2.34% ($1500)
Reward
9.38% ($6000)
Min Win Rate Needed
20.0%
Verdict
VALID TRADE
Discussion3 comments
This is exactly what I needed. The 10-layer system makes sense — explains why the signal quality is so consistent.
The No-Trade Zone filters are genius. I've been burned by signals during news events so many times. Good to know there's a filter for that.
Session bonus makes a lot of sense. London/NY overlap is always the most liquid period. Low liquidity breakouts are notorious fakeouts.