Risk Reward Ratio
The risk reward ratio compares your potential loss to your potential profit on a single trade. It shows whether a trade's profit target justifies the capital you're risking.
In depth
The risk reward ratio (RRR) is calculated by dividing your potential loss by your potential profit. If you risk $100 to make $300, your ratio is 1:3. This means every dollar risked targets three dollars in profit. A favorable ratio typically starts at 1:2, though 1:3 or higher is ideal.
Calculating your RRR requires three numbers: entry price, stop loss, and profit target. Subtract your stop loss from entry price to find risk. Subtract entry from profit target to find reward. Divide risk by reward. For example, if you enter at $50, stop at $48, and target $54, your risk is $2 and reward is $4. That's a 1:2 ratio.
Many professional traders won't take trades with ratios below 1:2. The logic is simple: even with a 50% win rate, a 1:2 ratio generates consistent profits. With a 1:1 ratio, you'd need a 60%+ win rate just to break even. This metric separates disciplined traders from gamblers. It forces you to think about every trade mathematically, not emotionally.
Why it matters
Risk reward ratio directly impacts long-term profitability. A trader with a 40% win rate but 1:3 ratios will outperform a trader with 60% wins but 1:1 ratios. This is because math favors consistent risk management over winning percentage. Most traders chase wins instead of managing risk, which destroys accounts.
Traders often ignore RRR because they're focused on being right. But even great traders are wrong frequently. What separates winners is managing money on losers versus winners. A 1:2 ratio ensures your winners offset multiple smaller losses. Without tracking ratios, you lack the data to improve systematically.
TraderLog's journal automatically calculates your risk reward ratio for every trade. You input your entry, stop loss, and target, and it computes the ratio instantly. This removes guesswork and keeps you accountable to your trading plan.
Our analytics dashboard shows your average RRR across all trades and by strategy. You can identify which setups offer the best ratios and focus your trading there. Over time, this data reveals patterns: maybe your best setups offer 1:3 ratios consistently. By filtering trades by RRR, you can measure whether better ratios actually improve your results.
Frequently asked questions
A 1:2 ratio is acceptable for most traders. Many professionals target 1:3 or higher. The key is consistency: maintain your minimum ratio across all trades. This forces discipline and removes emotion from trade selection.
Yes, but it's harder. You need a 60%+ win rate to profit with 1:1 ratios. Most traders achieve 40-55% win rates, making 1:1 unsustainable. A 1:2 ratio requires only a 33% win rate to break even long-term.
No. A good ratio alone doesn't make a trade worth taking. Your setup must have a legitimate edge first. Then verify the RRR makes mathematical sense. A 1:3 ratio on a weak setup still loses money.
Track Risk Reward Ratio in your trading journal.
TraderLog calculates Risk Reward Ratio automatically across your trade history, and shows you exactly when and why it changes.