Risk-reward ratio

It's calculated as the take-profit distance divided by the stop-loss distance. A 1:3 ratio means the potential gain is three times the potential loss on that trade.

For example, risking $100 (the stop-loss distance) to target a $300 gain (the take-profit distance) is a 1:3 ratio. The breakeven win rate for that ratio is risk ÷ (risk + reward) = 100 ÷ 400 = 25% — only 1 trade in 4 needs to work out for the trade to break even, before fees.

A common mistake is chasing an extremely high ratio (like 1:10) on every single trade. In practice that usually forces a stop-loss so tight that ordinary price noise triggers it before the trade has any real room to work, which can lower the actual win rate enough to offset the bigger theoretical payoff.