Understanding Risk-Reward (R/R) Ratio in Trading
How to calculate the risk-reward ratio, why average R matters more than winrate, and how funded traders use R/R to protect payouts.
The risk-reward ratio (R/R) is the single most misunderstood metric in trading. Most traders quote it. Very few actually track their realized R over time. This guide covers what R/R is, how to calculate it, and why the number you should care about is average R — not winrate.
What is the risk-reward ratio?
The risk-reward ratio compares how much you are risking on a trade to how much you plan to make. If you risk $100 to make $200, your planned R/R is 1:2, or 2R. R is the unit of risk: one R equals the distance from your entry to your stop loss.
How to calculate R/R
- Define your entry price.
- Define your stop loss — the price where you exit if wrong.
- Define your target — the price where you take profit.
- Risk = |Entry − Stop|. Reward = |Target − Entry|.
- R/R = Reward ÷ Risk.
Example: You buy a stock at $50, stop at $48, target at $56. Risk is $2, reward is $6, R/R is 3 — you are risking 1R to make 3R.
Why average R matters more than winrate
A 40% winrate is profitable if your average win is 3R and your average loss is 1R. A 70% winrate is a losing account if your average win is 0.5R and your average loss is 2R. R is the edge. Winrate is a comfort metric.
Winrate feels good. R is what keeps the payout.
Planned R vs. realized R
Planned R is what you set at entry. Realized R is what you actually got. The gap between them is where most funded accounts die: cutting winners early, moving stops, taking half-R exits on a 3R plan. TradePilot tracks both so you can see the leak — not guess at it.
R/R rules for funded and prop firm traders
- Never take a trade with a planned R below 1.5 unless it is a defined scalp system.
- Track average realized R weekly — not per trade.
- If realized R is consistently below planned R, the problem is exits, not entries.
- Pair R with rule adherence: a 3R trade taken outside your plan is still a rule break.
How TradePilot uses R
Every trade logged in TradePilot captures planned R, realized R, and the gap between them. Over time, the Daily Mirror and Trading DNA surface the pattern: which setups actually deliver their planned R, which sessions leak the most, and which behaviors — revenge trades, oversizing, cutting winners — cost you full R the most often. Winrate stops mattering. Average R starts.