Understanding Risk-Reward Ratios

Each of our plans is described with a risk-reward ratio — 1:2, 1:3 or 1:4. These numbers are about trade structure, and they are easy to misread.

What the ratio means

A 1:2 ratio means that for every unit of risk (the distance from entry to stop-loss), the profit target is two units away. If you risk $10 on a trade, the target is $20.

Why it matters

With a 1:2 ratio, a strategy can break even before costs while winning only about one trade in three. Higher ratios need even fewer winners to break even — but targets further away are also hit less often.

What the ratio doesn't tell you

• It doesn't tell you how often a strategy wins.
• It doesn't account for spreads, fees or slippage.
• It doesn't protect against gaps, where price jumps past a stop-loss.

Drawdown

Even well-structured strategies experience runs of losses. Our strategies are designed with the aim of keeping drawdowns within roughly 12–15%, but that is a target, not a promise.

This article is educational and is not investment advice.