Ask a losing trader about their last trade and you'll hear about the entry. Ask a profitable one and you'll hear two numbers: what they risked and what they stood to make.
R-multiples in one paragraph
Define your risk before entry: entry price minus stop loss, times shares. Call that 1R. Every outcome is then measured in R. A trade that risks $300 and makes $900 is a +3R trade. One that stops out is −1R. This single convention makes every trade in your journal comparable, regardless of ticker or account size.
The breakeven win rate
The risk/reward ratio of a setup determines how often you need to be right just to break even:
| Risk : Reward | Breakeven win rate |
|---|---|
| 1 : 1 | 50% |
| 1 : 2 | 33% |
| 1 : 3 | 25% |
The formula is 1 ÷ (1 + reward/risk). This is why professional traders obsess over asymmetric setups: at 1:3 you can be wrong three times out of four and still not lose money. At 1:1 you need a coin-flip edge that most traders simply do not have.
Using it before every entry
Before entering, write down three prices: entry, stop, target. If the distance to the target is not at least twice the distance to the stop, most traders should pass. The trade may still work — but you are paying too much risk for the potential reward, and over a hundred trades that arithmetic grinds you down.
Our free risk/reward calculator computes the R-multiple and the exact breakeven win rate for any setup. With a free account, you can save the calculation as a trade plan and record what actually happened — the only way to learn whether your targets are realistic.