Understanding risk-to-reward ratio
The ratio compares the distance from entry to stop loss with the distance from entry to target. A 1:3 result means the planned reward is three times the planned risk, before costs.
Break-even win rate
The theoretical break-even win rate is risk divided by risk plus reward. Real strategies must also cover spreads, commissions, slippage and imperfect execution.
Use ratios with probability
A large potential reward does not make a setup profitable by itself. Evaluate the ratio together with tested win rate, sample size, market conditions and consistent execution.