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Risk/Reward Ratio (R:R)
The ratio of potential loss (to stop) versus potential gain (to target) on a single trade.
What it is
Risk-to-reward is the asymmetry of a trade. A trade with a $20 stop and a $60 target has a 1:3 R:R — you risk 1 to make 3. The math: a 1:3 R:R trader only needs to win 25% of the time to break even. A 1:1 R:R requires 50%. So professionals filter aggressively for asymmetric setups (1:2 minimum, prefer 1:3+) and accept being wrong often. The mistake retail traders make: chasing high win-rate strategies with negative R:R (e.g. 80% win rate, but the rare loss is 5× the average win — net negative).
Example
ETH at $2,100. Stop $2,058 (risk $42 per coin). Target $2,226 (reward $126 per coin). R:R = 1:3. At 35% win rate this still nets positive: 100 trades = 35 wins × $126 + 65 losses × $42 = $4,410 - $2,730 = $1,680 net gain.
How Indikora uses Risk/Reward Ratio
Every Indikora Trade Plan displays the R:R ratio explicitly. Signals with R:R below 1:1.5 are auto-flagged as 'weak edge' even if the technical score is high.
Related terms
- Stop Loss — A pre-set order that closes a losing position automatically once price reaches a defined level.
- Take Profit — A pre-set order that closes a winning position automatically once price reaches a defined target.