Glossary
What Is the Risk/Reward Ratio (RR) in Trading
How many times farther the target is from entry than the stop: 1:2.5 means 2.5R of target per 1R of risk. RR is planned before the trade; R is the actual result.
How it works
RR is a ratio a trader calculates before entering a trade: how many times farther the target sits from entry compared to the stop. RR 1:3 means the target is three times farther from entry than the stop — it describes the trade's potential, not a guaranteed outcome.
Unlike R, which records the actual result of an already-closed trade, RR is a planning number: you calculate it from the chart before clicking the entry button. It exists to filter out trades with bad geometry upfront — for example, a stop twice as wide as the potential target.
A high planned RR doesn't guarantee profitability: a trade targeting RR 1:5 can hit its stop far more often than one targeting RR 1:1.5. RR should be read alongside real win rate and actual closed-trade R, not treated as a signal on its own.
Example
Entry at 100, stop at 96 (4-point risk), target at 112 (12-point potential). RR = 12 / 4 = 1:3. If the trade reaches target, the actual result matches the plan — +3R.
Common mistake
A common mistake is placing the target wherever it produces a nice-looking RR, instead of at a real level on the chart. RR calculated that way says nothing about the odds of actually reaching the target.
Read next
Related terms
Frequently asked questions
- What counts as a good RR?
- There's no universal number — it has to work together with the setup's real win rate: RR 1:1 needs a win rate above 50%, while RR 1:3 can be profitable with a win rate around 30%.
- Are RR and R the same thing?
- No: RR is the plan before entry, R is the fact after the trade closes. They only match if the trade closes exactly at target or exactly at the stop.
Plan versus outcome — for every trade
The Trading OS journal keeps the planned RR and the actual R of each trade side by side and computes expectancy from real results.
No sign-up — the journal runs in your browser; an account is only needed for sync.