Risk-to-reward & expectancy

Standardise every trade by defining your risk as '1R' — the distance from your entry to your stop, in dollars. A target twice that distance is a 2R trade; three times is 3R. Now every trade, regardless of price or position size, speaks the same language. A win is '+2R,' a loss is '−1R.' This is how professionals talk and journal.

Thinking in R frees you from dollar amounts and lets you evaluate your trading as a system. Over a hundred trades, what matters isn't any single result but your average R per trade — and that's something you can measure, compare, and improve.

Here's the liberating math. With a 2:1 reward-to-risk ratio (you make 2R when right, lose 1R when wrong), you only need to win about 35% of the time to break even, and anything above that is profit. With 3:1, your breakeven win rate drops to just 25%. You can be wrong most of the time and still make money handsomely.

This flips the beginner instinct. Beginners chase a high win rate, taking tiny profits and cutting winners early to 'feel right' more often — while letting losers run. That produces a great-looking win rate and a shrinking account. The pro does the opposite: cuts losers fast, lets winners run, and accepts a lower win rate in exchange for big average winners.

Expectancy ties it all together into a single value: the average profit you expect per trade. The formula: Expectancy = (Win% × Average Win) − (Loss% × Average Loss). As long as that number is positive, more trades make more money — the law of large numbers becomes your employee instead of your enemy.

Worked example: you win 40% of trades, your average win is 2R, your average loss is 1R. Expectancy = (0.40 × 2) − (0.60 × 1) = 0.80 − 0.60 = +0.20R per trade. Over 200 trades that's roughly +40R of profit — from a strategy that loses 60% of the time. This is why professionals obsess over process and sample size, not individual outcomes.

Reward-to-risk only counts if your targets are reachable. A 5:1 trade looks great on paper, but if price almost never travels that far before reversing, your real win rate collapses and the expectancy turns negative. Use structure — the next resistance level, a Fibonacci extension, the opposite channel rail — to set targets price can actually hit.

There's a balance: too tight a target and your reward-to-risk is poor; too greedy and you rarely get paid. Anchoring targets to real levels, and sometimes scaling out (taking partial profit at the first target, letting the rest run), is how experienced traders keep both the ratio and the hit rate workable.