What it means
It only matters together with win rate: a 5:1 target that is rarely hit can still lose. Entrix Academy writes it reward first (3:1); Chart Analysis shows the same thing risk first (1:3).
Example
Short 250, stop 254, target 238: 12 ÷ 4 = 3:1.
In practice
Working out the ratio before entering is a test of whether a trade is worth taking. If the nearest realistic target is only as far away as the stop, many traders pass; a common minimum is a reward of twice the risk.
The target should come from the chart, at a level where price has a reason to react, not from multiplying the stop distance.
What to watch for
Placing a far target to make the ratio look good does not make it reachable. Shrinking the stop to improve the ratio only increases the number of losses.
Related terms
3 terms- R-multipleA trade's result measured in units of what you risked: −1R is a full loss, +2R is twice your risk.
- Win rateThe share of trades that end in profit; meaningless without the size of wins and losses.
- Breakeven win rateThe win rate at which a given reward to risk neither makes nor loses money: 1 ÷ (1 + R:R).