Is a 1:3 risk-reward ratio better than 1:1?

Only if the target is still reached often enough. The breakeven win rate is 25% at 3:1 and 50% at 1:1 before costs. Which one has the higher expectancy depends on the hit rates each target actually achieves on the instrument and timeframe you trade.

Should the risk-reward ratio decide where I put my stop?

The usual reasoning runs the other way: the stop goes where the trade idea is wrong, the target where the expected move plausibly ends, and the ratio is the result. Fixing the ratio first and fitting the levels to it tends to produce stops inside normal noise.

Risk-reward ratio

The risk-reward ratio of a trade compares the planned loss if the stop is hit with the planned gain if the target is reached, both measured from the entry price. It is a property of the plan, not of the outcome, and says nothing about profitability until it is paired with the probability of reaching the target.

Senzoukria · Glossary · Updated September 2026

At a glance

Reward-to-risk: |target − entry| ÷ |entry − stop|
Notation: 1:2 (risk:reward) and 2:1 (reward:risk) describe the same trade
Needs: A hit probability to become an expectancy
In Senzoukria: R:R badge of the Long/Short tool, 2.00 : 1 by default

Computing it

Measure the distance from entry to stop and from entry to target in ticks or points, then divide one by the other. A long ES entry at 5,000.00 with a stop at 4,996.00 and a target at 5,008.00 risks 4 points and aims for 8. With the ES multiplier of 50 dollars per point, that is 200 dollars of risk and 400 dollars of planned gain per contract: a reward-to-risk ratio of 2, written 2:1, or a risk-to-reward of 1:2. Many platforms and traders use the two notations interchangeably, so always check which way round a number is written.

Costs are part of the arithmetic. A round-trip fee and one tick of slippage reduce the planned gain and increase the planned loss, so a 2:1 plan is slightly below 2:1 once it is executed.

What the ratio does not say

The chance of reaching the target falls as the target moves away. Doubling the target distance rarely leaves the hit rate unchanged.
Where the stop sits is a statement about where the idea is invalidated; moving it closer to improve the ratio usually lowers the hit rate more than it helps.
The realized ratio, the payoff ratio, is what the statistics of past trades report. Exits before target and slippage make it differ from the plan.
A ratio is only comparable between trades with similar time horizons; a 3:1 scalp and a 3:1 swing trade are different bets.

In Senzoukria

The Long and Short position tools draw a planned trade on the footprint chart with an entry, a stop and a target, and show a read-only R:R value that updates while you drag the handles. By default the stop sits at the larger of 80 ticks and 0.05% of the price from the entry and the target at twice that distance, hence 2.00 : 1; the badge shows ∞ : 1 if the stop is placed on the entry. The tool then follows the bars that come next and labels the plan PENDING, ACTIVE, STOPPED or TARGET HIT, using bar highs and lows and checking the stop first when both levels fall inside one bar. It is a drawing: it sends no order, including on crypto charts, where it is described as a risk/reward box. The Risk/Reward Levels indicator draws 1R, 2R, 3R and −1R around the last close with R equal to 1.5 times the 14-period ATR by default, also without any order.

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Frequently asked questions

Is a 1:3 risk-reward ratio better than 1:1?: Only if the target is still reached often enough. The breakeven win rate is 25% at 3:1 and 50% at 1:1 before costs. Which one has the higher expectancy depends on the hit rates each target actually achieves on the instrument and timeframe you trade.
Should the risk-reward ratio decide where I put my stop?: The usual reasoning runs the other way: the stop goes where the trade idea is wrong, the target where the expected move plausibly ends, and the ratio is the result. Fixing the ratio first and fitting the levels to it tends to produce stops inside normal noise.

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