CandleGPTRisk-reward ratio and win rate: how they work together
A 1:3 risk-reward ratio sounds better than 1:1. A 70% win rate sounds better than 35%. Neither means anything on its own. Here is how the two fit together, the break-even table, and how to check your own numbers.
What the ratio is
The risk-reward ratio compares what you can lose (entry to stop) with what you aim to win (entry to target). A stop 20 pips away and a target 40 pips away is 1:2: you risk 1 to make 2.
The planned ratio is not the same as the real one. Trades closed early, moved stops and slippage change it. The number that counts is in your history: average win ÷ average loss.
The break-even table
To break even before costs, your win rate must reach 1 ÷ (1 + ratio):
| Risk-reward | Win rate needed to break even |
|---|---|
| 1:0.5 | 66.7% |
| 1:1 | 50% |
| 1:1.5 | 40% |
| 1:2 | 33.3% |
| 1:3 | 25% |
So a 40% win rate is fine at 1:2 and losing at 1:1. And a 70% win rate is losing if the average loss is three times the average win, which is common among traders who never let a loss hit the stop but take profits quickly.
Expectancy: what a trade is worth on average
Expectancy = (win rate × average win) − (loss rate × average loss)
Example: 40% winners at $120 on average, 60% losers at $70 on average. Expectancy = 0.4 × 120 − 0.6 × 70 = 48 − 42 = +$6 per trade, before costs.
If spread and commission cost $5 per trade, the edge is almost gone. That is why the number of trades matters so much.
The traps
- Targets that are never reached. A 1:3 target that the market rarely touches gives a low win rate. The ratio must fit how far the market really moves at that time (see sessions).
- A stop placed to fit the ratio. The stop goes where your idea is wrong, not where it makes the ratio look good. Then the size adapts (see position size).
- Too few trades to judge. On 20 trades, a 50% win rate can easily be luck. Judge on 100 or more.
- Forgetting losing streaks. At 1:3 with 30% winners, ten losses in a row are not rare. Risk per trade must allow for it.
Check your own numbers
- Export your history.
- Work out your win rate, your average win and your average loss, after commission and swap.
- Compare your real ratio with the break-even table. If you are below the line, either the win rate or the ratio must change, and your history usually shows which one.
CandleGPT does this for you, in MetaTrader
CandleGPT shows the money at risk and the potential gain of a trade before you take it, and your report shows your real win rate and average win and loss, after costs.
See plansTrading involves a high risk of losing money. This guide is educational: it is not investment advice and does not tell you what to buy or sell. Past results do not predict future results.