Trading Strategies
Risk-Reward Ratio
The ratio between what a trade risks and what it targets. A 1:2 trade risks $100 to make $200. The lever that makes modest win rates profitable.
In plain English
Every trade plan reduces to risk versus reward. At 1:2, a 40 percent win rate profits; at 1:1 it loses after costs. The ratio interacts with win rate to produce expectancy, and improving one usually costs the other.
Prop evaluations quietly enforce the concept through the P/D ratio: the account itself has a risk-reward profile, and traders whose per-trade ratios are worse than the account's rarely pass. Serious prop traders know both numbers cold.
- Risking 8 NQ points to target 16 is 1:2.
- Ten trades at 40 percent wins: 4 x $320 - 6 x $160 = $320 net per contract.