Risk-to-Reward and R-Multiples Explained (With Gold Examples)
Risk-to-reward (R:R) compares what you stand to gain with what you stand to lose. An R-multiple expresses a trade's result in units of the initial risk.
The formulas
risk = |entry − stop|
reward = |target − entry|
R:R = reward / risk
Example: entry 3312.65, stop 3306.00, target 3360.00 → risk 6.65, reward 47.35, R:R = 7.12.
R-multiples
If you risk 6.65 points and the trade gains 13.30, the result is +2R. A stop-out is −1R. Measuring in R lets you compare trades of any size.
Why a minimum R:R matters
With a 2R minimum, you need to win only one trade in three to break even before costs:
| Win rate | Break-even R:R |
|---|---|
| 33% | 2.0 |
| 40% | 1.5 |
| 50% | 1.0 |
| 60% | 0.67 |
That is arithmetic, not a promise: real win rates for a strategy must be measured, and spreads and slippage reduce them. See how to backtest properly.
How BlessedForex uses it
The target is the nearest unswept opposing liquidity that satisfies the minimum (default 2.0). If none does, the setup is rejected and kept in history with the reason, rather than shown as a trade.
Expectancy
Average result per trade in R: win rate × average win − loss rate × average loss. Positive expectancy over many trades is the real goal.
Common mistakes
- Choosing the target first and moving the stop to make the ratio look good.
- Ignoring costs on small stops. See position sizing.
- Judging a strategy on ten trades.
Questions & answers
What is a good risk-to-reward ratio?
It depends on win rate. Higher R:R tolerates a lower win rate, but only if the target is realistically reachable. Measure both in a back-test.
What does 3R mean?
A gain equal to three times the amount you risked on the trade.
Do spread and commission affect R?
Yes. They increase the real risk and reduce the real reward, especially on tight stops. Back-tests that ignore them overstate results.
Why does BlessedForex reject low R:R setups?
A minimum R:R filters out trades where the nearest target is too close to justify the stop. Rejected setups stay visible in history so you can see what was skipped.