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What is Risk/Reward Ratio (R:R)?

The ratio between the potential loss on a trade and the potential profit — e.g. 1:2 means risking $1 to make $2.

The risk/reward ratio (R:R or RR) tells you how much you expect to gain for every dollar you risk on a trade. It's the foundation of professional position sizing.

Formula:

R:R = Distance to stop-loss / Distance to take-profit

Example: You buy BTC at $50,000.

  • Stop-loss: $49,000 (risk = $1,000)
  • Take-profit: $52,000 (reward = $2,000)
  • R:R = 1,000 / 2,000 = 1:2
  • Why it matters:

    With a 1:2 R:R, you only need to win 33% of trades to break even. With 1:3, you only need 25%.

    R:RBreakeven Win Rate
    1:150%
    1:233%
    1:325%
    1:420%

    Minimum viable R:R:

    Most professional traders use at least 1:2. Below 1:1.5, commissions and spread will eat your edge. Targeting 1:3 or better gives you a significant buffer even with a modest win rate.

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