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Risk-reward ratio: formula, break-even win rate and what 1:2 and 1:3 did on gold

By Saad El Soussi, UAE-authorized finfluencer · Updated 2026-11-08

The risk-reward ratio compares what a trade can lose to what it aims to win: distance from entry to stop loss against distance from entry to target. Risk $15 to make $30 is 1:2. The lesson calls 1:2 to 1:3 a good ratio and warns against targets of 20 times the risk, "because that's not how the market works". The ratio sets the win rate you need just to break even: 50% at 1:1, 33.3% at 1:2, 25% at 1:3. On 36 gold chart-pattern trades, a 1:1 target was hit 15 times within five days, a 1:2 target only 3 times.

How to calculate it

Risk = |entry - stop loss|. Reward = |target - entry|. Ratio = 1 : (reward ÷ risk). In money, both sides scale with the position size, so the ratio is the same at 0.01 lot and at 1 lot. Traders also say "2R" for a target twice the risk; R is simply the amount you risk on the trade.

Example: buy gold at $4,000, stop at $3,985, target at $4,030. Risk $15, reward $30, ratio 1:2.

The break-even win rate

If every loss costs 1R and every win pays R, you break even when W × R = (1 - W) × 1, so W = 1 ÷ (1 + R). Before costs:

Ratio	Break-even win rate	Wins needed in 10 trades to be ahead
1:0.6	62.5%	7
1:1	50%	6
1:1.5	40%	5
1:2	33.3%	4
1:3	25%	3
1:5	16.7%	2

Check of the 1:2 row: 4 wins × 2R = 8R, 6 losses × 1R = 6R, net +2R. With 3 wins: 6R - 7R = -1R. Expectancy per trade = W × R - (1 - W); at 40% and 1:2 it is 0.4 × 2 - 0.6 = +0.2R.

What the lesson says about trade management

Stop loss on every trade. The most fundamental technique to protect capital: never open a trade without one. The stop defines the maximum loss you accept on a single trade.
Position size from the risk. Adjust the size to the risk of each trade: half a percent or one percent of the trading capital per trade.
Realistic targets. A good ratio is 1:2 or 1:3; do not put a take profit at 20R. Fix the target in advance from your analysis, which helps you avoid greed and secure profit.
Always a plan. Entry, stop loss and take profit are set before you enter any trade. The trading plan page turns that into a written template.

What fixed targets did on gold

We took the 37 chart-pattern trades from our gold backtest (4-hour gold, 13 June 2024 to 3 November 2026; entry at the confirming close, stop beyond the pattern) and replaced the target with a fixed multiple of the risk. A trade that hit neither within 30 four-hour candles (about five trading days) was closed at that candle's close. No costs included.

Target	Hit target	Hit stop	Closed on time	Total R	Break-even win rate
1R (1:1)	15	9	13	+8.54	50%
2R (1:2)	3	9	25	+9.42	33.3%
3R (1:3)	2	9	26	+10.27	25%
Pattern's measured move (36 trades)	19	9	8	+7.58	depends on the trade

Three readings. First, a farther target is hit far less often: 15 times at 1R, 3 at 2R, 2 at 3R. The stops did not change (9 in every row), so the extra trades became time exits. Second, the higher totals at 2R and 3R came from those time exits, mostly buys drifting up in a rising market, not from targets being hit; in a flat or falling market the same exits would have looked worse. Third, the pattern's own measured move gave a median win of only 0.58R, because a stop beyond the top or bottom is usually farther away than the measured target. Before you take a textbook pattern trade, check that the ratio is worth it.

So 1:2 or 1:3 is a sound rule for the trade you plan, but the target must be where the chart says the move can reach, such as the next resistance level or the swing low, not a multiple chosen for the ratio. If the chart only allows 1:1, the lesson's answer is to skip the trade, not to move the target.

A worked example

Account $5,000, risk 1% = $50. Buy gold at $4,000, stop $3,985 ($15), target $4,030 ($30), ratio 1:2. Size: 50 ÷ (15 × 100) = 0.033, rounded down to 0.03 lot (on gold 1 lot = 100 ounces, so $1 = $100 per lot). Loss at the stop 0.03 × 100 × 15 = $45; gain at the target 0.03 × 100 × 30 = $90. Ten trades with 4 winners: 4 × 90 - 6 × 45 = +$90. With 3 winners: 270 - 315 = -$45. The ratio decides how few winners you can afford; the stop decides the size. The lot size calculator and profit calculator do the arithmetic.

Key points from the lesson

Never open a trade without a stop loss.
Risk half a percent to one percent of your capital per trade and size the position from the stop.
A good risk-reward ratio is 1:2 to 1:3; a 20R target is not how the market works.
Set entry, stop and target before you enter, from your analysis.
Our gold numbers: break-even is 33.3% at 1:2; on 37 pattern trades a 2R target was reached only 3 times within five days. Put the target where the chart allows it.

Want to see stops and targets on real gold trades?

The Telegram bot answers in English, explains the VIP gold trades (each with entry, stop loss and targets) and shows where the weekly results are published, losing trades included. Trading is risky; most retail accounts lose money.

Open the SesTrading botOn Telegram

Questions people ask

What is a good risk-reward ratio?

The course lesson calls 1:2 to 1:3 a good ratio. It is only good if the target sits where the chart can actually reach; on 37 gold pattern trades a 2R target was reached within five days only 3 times.

How do you calculate risk-reward ratio?

Divide the distance from entry to target by the distance from entry to stop. Buy at $4,000, stop $3,985 and target $4,030: 30 ÷ 15 = 2, a ratio of 1:2.

What win rate do I need at 1:2?

33.3% to break even before costs, from W = 1 ÷ (1 + R). At 1:1 you need 50%, at 1:3 25%.

Is a higher risk-reward ratio always better?

No. A farther target is hit less often: in our gold test 15 of 37 trades reached 1R, 3 reached 2R and 2 reached 3R. What matters is win rate and ratio together: expectancy = W × R - (1 - W).

Should I move my stop loss to break even?

The lesson does not teach it; it fixes entry, stop and target in advance. Moving a stop early turns some trades that would have won into small losses or zero, so test it in a backtest before you use it.

Does the risk-reward ratio change with lot size?

No. Both the risk and the reward scale with the position size, so the ratio stays the same. Lot size decides how much money 1R is.

Authorized in the UAESaad Nizar El Soussi, founder of SesTrading, is listed by the UAE Capital Market Authority as an authorized finfluencer (entry 193, added 24 September 2026). Check the official list.