Risk/Reward Ratio
Also called: reward to risk, R multiple
The potential reward of a trade divided by the risk taken — how much you stand to make against how much you'd lose if wrong.
Risk/reward divides the distance from entry to target (reward) by the distance from entry to stop (risk). A 3:1 trade aims to make three times what it risks, so even a modest win rate can be profitable. It's the core of trade planning: never enter without knowing it.
Risk/reward only matters paired with your win rate. At 2:1 you break even winning about 1 in 3; at 1:1 you need 50%. A great ratio with a terrible hit rate still loses, and vice versa — the edge is in the combination.
On StockSetups
Every StockSetups setup ships with an entry, stop and target, so the reward-to-risk is computed for you, and the free risk/reward calculator lets you check any trade's math.
Frequently asked
What is a good risk/reward ratio?
Many traders look for at least 2:1, but it depends on your win rate — a high reward-to-risk lets you stay profitable even when you're right less than half the time.
Related terms
See risk/reward ratio on tonight's board.
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