Risk–Reward and Expectancy
You can lose more often than you win and still compound.
Written and reviewed by the Fundezy team · how we produce this
Every trade has two numbers written before entry: the distance to your stop (risk, R) and the distance to your target (reward). Their ratio — R:R — is the framework that makes losing trades bearable.
The breakeven arithmetic
| R:R | Breakeven win-rate |
|---|---|
| 1:1 | 50% |
| 1:2 | 33% |
| 1:3 | 25% |
| 1:5 | ~17% |
A trader targeting 2R with a 40% win rate loses 6 trades out of 10 and still prints money: 10 trades → 4 × 2R − 6 × 1R = +2R. Meanwhile a 1:1 shooter needs to be right half the time just to tread water before costs.
Expectancy — the only scoreboard
Expectancy = (win% × average win) − (loss% × average loss)
Positive expectancy, applied consistently with position sizing from Lesson 1, is the entire business model of trading. Note what it does not contain: predictions, confidence, or the last trade's outcome.
Why beginners invert the ratio
Taking profits quickly ("it might reverse!") and letting losers run ("it will come back!") produces many small wins and rare huge losses — a 70% win rate with negative expectancy. It feels skilled and bleeds money. The fix is mechanical: set the stop and target at entry and let the platform do the exiting.
Take-profits on the platform
Attach the TP with the order. A clean habit: after computing lots for 1% risk (Lesson 1), place TP at ≥2× the stop distance unless the next opposing structure level sits closer — if resistance caps your target at 1.2R, either skip the trade or accept the degraded expectancy knowingly.
Sample size honesty
Ten trades tell you almost nothing — a 40%-win-rate system produces 10-trade streaks of 1–7 wins routinely. Judge strategies over 100+ trades (which is exactly what backtesting on this platform gives you — Course 06), and judge yourself on process, never on a single outcome.
By the numbers
The breakeven table is pure arithmetic: at 1:2 risk–reward a 33% win rate breaks even, at 1:3 just 25% — a trader banking 2R at a 40% win rate nets +2R over every ten trades. The sample-size rule of thumb from statistics: below about 30 trades a result is noise; 100 or more is the honest grade.
Practice in the simulator
Place a trade with TP at 2× the SL distance — apply what you just read with simulated money.
Check your understanding
4 questions · answer all, then submit.