Example
At 2:1 you need about 33% winners to break even; at 3:1 just 25%.
In practice
The figure shows how often a strategy has to win just to stand still. At a reward of 1:1 it is 50%, at 2:1 about 33%, at 3:1 only 25%. Comparing it with the win rate you actually achieve shows at once whether the plan can be profitable.
It also explains why traders care about reward to risk: larger targets lower the bar.
What to watch for
Costs raise the real breakeven point, and a larger target is hit less often, so the two numbers move against each other. Use the win rate from your own record, not the one you hope for.
Related terms
3 terms- Win rateThe share of trades that end in profit; meaningless without the size of wins and losses.
- Risk to rewardRRThe distance to your target compared with the distance to your stop, decided before entry.
- ExpectancyWhat a strategy makes per trade on average: win rate × average win − loss rate × average loss.