Glossary
Risk/reward ratio
The risk/reward ratio compares what a trade risks against what it targets: risking 50 pips to make 150 is a 1:3 risk/reward. Together with win rate, it determines profitability — a 1:3 ratio is profitable even winning only a third of the time. Neither number means anything alone; the pair defines the math of the strategy.
The classic beginner error is maximizing one side of the pair while ignoring the other: cutting winners short to protect win rate, or holding huge targets that never fill to protect the ratio.
A journal exposes your realized (not planned) risk/reward — the ratio your fills actually achieved — which is frequently far worse than the ratio drawn on the chart. Closing that gap is one of the most common review-driven improvements.
Related terms