The concept
Risk/reward compares potential loss (to stop) with potential gain (to target). A 1:2 ratio risks $1 to potentially make $2.
Why it matters
It shows what win rate is needed to break even: at 1:2, about 33% before costs.
How markets interpret it
Ratios describe a plan, not a probability. Distant targets are hit less often.
Key takeaways
- R:R links win rate to break-even.
- Ratio is not probability.
Knowledge check
At 1:1 risk/reward (no costs), break-even win rate is…