Risk-Reward Ratio Explained: Why R-Multiples Matter More Than Dollars
Risk-reward ratio is one of the most commonly discussed concepts in trading — and one of the most misunderstood. A 3:1 ratio doesn't automatically make a trade good. What matters is how the risk-reward profile interacts with your win rate, average win, average loss, execution and trade frequency.
What Is R?
R represents your predefined amount of risk on a single trade. If you risk $100:
| Result | Dollar Result | R-Multiple |
|---|---|---|
| Stop loss hit | −$100 | −1R |
| Small winner | +$50 | +0.5R |
| 1:1 target | +$100 | +1R |
| 2:1 target | +$200 | +2R |
| 3:1 target | +$300 | +3R |
This makes trades much easier to compare regardless of account size. A trader risking $100 and another risking $10,000 can both report a result of +2R and be directly compared.
Risk-Reward Ratio Isn't Enough on Its Own
Consider two hypothetical strategies:
| Metric | Strategy A | Strategy B |
|---|---|---|
| Win Rate | 70% | 40% |
| Average Win | +0.5R | +2R |
| Average Loss | −2R | −1R |
| Expectancy (illustrative) | −0.25R | +0.20R |
Strategy A wins far more often. Strategy B is nevertheless profitable under these assumptions. That's why you shouldn't optimise for win rate or R:R alone — you need to consider the whole picture.
Track Your Planned vs Actual R
There's another useful question: do you actually achieve the R:R you plan?
Suppose you consistently identify 3R opportunities but close your trades at +0.6R because you become nervous. Your theoretical strategy may have a completely different performance profile from your actual executed strategy. The journal bridges that gap.
Use The Trading Terminal to Analyse It
With The Trading Terminal, record both your planned risk parameters and the actual result. Then use the performance analytics to investigate average R by setup, session, emotion and mistake category.
The objective isn't to chase the biggest R:R possible. It's to determine whether your actual execution produces positive expectancy over a meaningful sample of trades.
Frequently Asked Questions
What is R in trading?
R is the amount you risk on a trade. If you risk $100, a stop-loss hit is -1R, a 2:1 target is +2R and a small $50 winner is +0.5R. Expressing results in R makes trades comparable across account sizes.
Is a higher risk-reward ratio always better?
No. A 3:1 ratio does not make a trade good by itself. What matters is how the ratio interacts with your win rate, average win, average loss, execution and trade frequency, which is why expectancy is a better guide than the ratio alone.
Should I track planned R or actual R?
Both. Planned R shows the trade you intended and actual R shows what happened. A gap between them, such as exiting early or moving a stop, is where execution problems show up.
For filled-in samples that record planned and actual R, see trading journal examples.
Track R-multiples, average winners, average losers — all in one journal.
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