Risk/Reward Ratio in Trading: Why 2:1 Makes You Profitable

What is the Risk/Reward Ratio?

The Risk/Reward Ratio (RR) compares your potential risk per trade with your potential profit. Simply put:

• •Risk = Distance from entry to stop-loss
• •Reward = Distance from entry to take-profit

With a 2:1 RR, your winning trade is twice as large as a potential losing trade.

Example:

• •Entry: $100
• •Stop-Loss: $99 (Risk = $1)
• •Take-Profit: $102 (Reward = $2)
• •→ RR = 2:1

Why 2:1 is the Magic Number

Many beginners think: "I need a high win rate to be profitable." Wrong!

The math:

With 2:1 RR, you only need a 34% win rate to break even:

10 trades at 34% win rate:
- 3.4 winners × +2% = +6.8%
- 6.6 losers × −1% = −6.6%
- Net: +0.2% ≈ Breakeven

At 50% win rate with 2:1 RR:

10 trades:
- 5 winners × +2% = +10%
- 5 losers × −1% = −5%
- Net: +5% per 10 trades

At 60% win rate (Snapback target range):

10 trades:
- 6 winners × +2% = +12%
- 4 losers × −1% = −4%
- Net: +8% per 10 trades

Conclusion

A good Risk/Reward ratio is more important than win rate. With a systematic 2:1 approach, you're already profitable at 40% win rate — and sleep better at night.

The Snapback strategy handles this math for you. Test it for free.