Risk-Reward Ratio

The risk-reward ratio (RR) compares a trade's planned reward to its planned risk:

RR = |take-profit − entry| / |entry − stop-loss|

Long at $64,000 with a stop at $62,720 (risk $1,280) and a target at $66,560 (reward $2,560) is a 2R trade: you risk 1 unit to make 2.

R as a unit

Denominating results in R (multiples of initial risk) makes trades comparable regardless of size. A +2R scalp and a +2R swing trade contributed equally relative to what they risked. Combined with win rate, RR determines whether a system can make money at all; the break-even win rate for a given RR is:

break-even win rate = 1 / (1 + RR)

At 2R you only need to win more than 33% of the time. At 0.5R you need 67%.

The trap

High RR targets look great on paper and get hit less often. Pushing RR up usually pushes win rate down, so the pair has to be judged together (that product is the system's expectancy). This is why a backtest across hundreds of trades beats any single-trade arithmetic.

On AlphaProve

The no-code builder lets you set the take-profit directly as an RR value, so the 2R and 0.5R targets discussed here become one field rather than a price you keep recomputing. After a backtest, the tearsheet pairs win rate with profit factor and average win/loss, which is where you check whether the realized RR cleared the break-even win rate the formula above predicts. Because that verdict only means something with a decent sample, the trade-count significance card flags runs with too few trades to trust.