Risk-Reward Ratio

The risk-reward ratio compares how much a trader stands to lose (the distance to the stop-loss) against how much they stand to gain (the distance to the take-profit) on a given trade — a 1:2 ratio means risking one unit to potentially make two. A favorable risk-reward ratio means a strategy can still be profitable overall even with a win rate below 50%. Risk-reward and win rate work together, not independently: a strategy needs a combination of the two that produces a positive expectancy over a large enough sample of trades.