What is Risk-Reward Ratio?
Risk-reward ratio frames whether a setup pays enough when you are wrong often. A 1:3 plan risks ₹1,000 to target ₹3,000 — independent of whether you hit the target.
Formula
Planned R:R = Target distance ÷ Stop distance (same units)
Indian market context (NSE)
Reference levels: Nifty 50 at 24,300, Reliance Industries at ₹1,300, Bank Nifty futures at 55,000 (lot size 30). Examples below show how Risk-Reward Ratio shows up on Indian index, equity, and futures books — update to live quotes in your journal.
Nifty 50 perspective
Nifty long 24,300, target 24,450 (+150), stop 24,220 (−80) → planned R:R ≈ 1:1.9. Slippage on stop during fast tape can worsen realised R.
Reliance Industries perspective
Reliance ₹1,300 entry, target ₹1,330, stop ₹1,288 → ~1:1.5. Delivery vs intraday changes STT and holding cost — net R differs.
Bank Nifty futures perspective
Bank Nifty 55,000 long, target 55,180, stop 54,880 → 180:120 = 1:1.5. One lot P&L maps to ₹5,400 win vs ₹3,600 loss before charges.
| Win rate | Breakeven R:R (approx.) |
|---|---|
| 40% | 1:1.5 |
| 50% | 1:1 |
| 60% | 1:0.67 |
How to validate
- Minimum sample: 30 closed trades on one strategy tag before trusting Risk-Reward Ratio.
- Check for one outlier week inflating Risk-Reward Ratio — export largest winners and losers.
- Recompute Risk-Reward Ratio after including brokerage, STT, and slippage on F&O tags.
- Compare Risk-Reward Ratio on the same date range as profit factor and max drawdown.
How to track in TradeLyser
- Open Strategy Board or analytics → filter by strategy tag and review period.
- Locate the widget or column reporting Risk-Reward Ratio (or export trades to compute manually).
- Store snapshot values in weekly review: Risk-Reward Ratio, profit factor, drawdown, trade count.
- If Risk-Reward Ratio is custom, add a spreadsheet column fed from TradeLyser CSV export.
Best practices
- Publish Risk-Reward Ratio per strategy, not only at account level.
- Use the same calculation window (weekly vs monthly) year-round.
- Pair Risk-Reward Ratio with sample size in every review slide or note.
- Document formula used so mentors interpret the same number.
Common pitfalls
- Changing rules after fewer than 20 trades because Risk-Reward Ratio moved slightly.
- Mixing intraday and positional tags when computing Risk-Reward Ratio.
- Ignoring costs so Risk-Reward Ratio looks better than banked P&L.
- Letting one outlier trade dominate the Risk-Reward Ratio reading.
How to use this in TradeLyser
Store planned stop and target in trade notes. Weekly, compare average planned R:R to average realised R on the same tag to catch execution drift.
Reference guide
| Context | Value | Reading |
|---|---|---|
| Discipline | Planned R:R stored on every entry | Moving stop after entry without note |
Related terms
Expectancy answers whether your edge pays each time you repeat the setup. Positive expectancy means the system earns over many trades; negative expectancy means it bleeds even with a high win rate.
A stop loss is a pre-defined exit when the market moves against you by a set amount. It caps loss per trade when fills match your plan.
Win rate is the share of your closed trades that closed in profit after costs. It tells you how often you are right — not how much you make when you are wrong.
By trader level
Start here — essential concepts
New to trading or journaling? These are the core terms you need to understand before anything else.
FAQ
What is a good risk-reward ratio for trading?
A good risk-reward ratio is typically 1:2 or higher, meaning you aim to make at least twice what you risk. However, the optimal ratio depends on your win rate. With a 50% win rate, you need at least 1:1 to break even. Higher win rates allow for lower R:R ratios while remaining profitable.
How do I calculate risk-reward ratio?
Calculate risk-reward ratio by dividing your potential reward by your potential risk. If your entry is $100, stop loss at $95 ($5 risk), and target at $115 ($15 reward), your R:R is 15/5 = 1:3. The formula is (Target Price - Entry Price) / (Entry Price - Stop Loss).
What is a 1:3 risk-reward ratio?
A 1:3 risk-reward ratio means you're risking 1 unit to potentially gain 3 units. If you risk $100 on a trade with a 1:3 R:R, your profit target is $300. This ratio allows you to be profitable even with a win rate as low as 25%.
Should I always use a 1:2 risk-reward ratio?
Not necessarily. The ideal ratio depends on your strategy and win rate. Scalpers may use 1:1 with high win rates, while swing traders might target 1:3 or higher. The key is ensuring your R:R and win rate combination produces positive expectancy.
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