Risk/reward ratio (R:R): the number that matters more than your win rate

Risk/reward ratio (Risk:Reward) compares what you're willing to lose on a trade to what it can yield: the distance from entry tostop versus the distance from entry to target. A 1:2 ratio means — risking one shekel to aim for two.

This is the number that separates trading from guessing: it's determined entirely before the entry, from the plan itself — and doesn't depend on any forecast.

The language of R: how to truly measure performance

Experienced traders measure everything in units of risk — RA loss at the stop = −1R. A profit double the risk = +2R. This language removes ego from the equation and allows completely different trades to be compared to one another.

And here's the math that surprises every beginner: assume 10 trades, all planned at a 1:2 ratio, and only 4 succeeded. The result: 4×(+2R) − 6×(−1R) = +2R — cumulative profit, with only 40% win rateYou don't need to be right most of the time; you need losses to stay small and profits to be bigger than them.

The practical implication: which trades to even consider

• Filter by ratio, not by excitement: A trade that 'feels safe' with a 1:0.5 ratio is a mathematical trap — it requires unreasonable precision over time.
• The ratio is derived from the structure: An entry close to a protection level (support, breakout line) = short stop = good ratio. An entry in the middle of nowhere = wide stop = poor ratio. Therefore Where Where you enter matters more thanwhat you buy.
• A realistic target, not a fantasy: The target is measured from the pattern or the next significant level — not from the number that would be nice to happen. An inflated ratio on paper is self-deception.

The complete triangle: ratio, risk percentage, position size

Three numbers complete an entire trade plan: (1) How much of the portfolio to risk on a trade — commonly 1%–2%; (2) Where the stop is — and from that, position size is derived; (3) What the ratio is — and it decides whether the trade is even worth opening.

Example: a portfolio of 50,000 ₪, risk of 1% = 500 ₪ per trade. A stock is bought at 100 with a stop at 96 — risk of 4 ₪ per share — so you buy 125 shares. If the target is at 110 (ratio 1:2.5), the potential is +1,250 ₪ versus 500 ₪ risk. All the numbers are known before the money moves.