Risk-Reward Ratio
Also called: risk reward, R multiple, reward to risk
The risk-reward ratio compares the distance to your stop with the distance to your target. A 1:3 ratio means you can be right a quarter of the time and still break even, which is why it's the standard defence for strategies with low win rates. It's only meaningful if the target is realistic — a favourable ratio built on a target price nothing reaches is arithmetic, not an edge.
Formula
Risk-reward = (Target − Entry) ÷ (Entry − Stop)