Risk/reward compares the amount a trade can lose at its planned stop with the amount it could gain at its planned target.
A 1:3 setup means the planned reward is three times the planned risk. It describes the structure of a trade, not its probability of winning.
How it works
- 1. Measure entry-to-stop distance.
- 2. Measure entry-to-target distance.
- 3. Divide potential reward by potential risk.
- 4. Compare the ratio with the strategy win rate and costs.
- 5. Reject trades whose structure does not fit the plan.
What matters most
- High reward-to-risk can come with a lower win rate.
- Small spreads matter more when targets are close.
- Consistency matters more than chasing a perfect ratio on every trade.
- The ratio should be calculated from executable prices where possible.
Practical example
Risking $10 for a planned $30 target is 1:3. Ten such trades with four winners and six full losses would be +$60 before costs: $120 gross wins minus $60 losses.
Common mistakes to avoid
- Assuming 1:5 automatically means a trade is better than 1:2.
- Ignoring probability and execution costs.
- Changing the target solely to make the ratio look attractive.
- Increasing risk after a losing streak.
Using this on Chaintreda
Use the CTmarketer risk/reward calculator to test a setup, then move into Chaintreda Trade to view the actual current market before entering.
Related markets
Frequently asked questions
What is a good risk/reward ratio?
There is no universal number. It must be evaluated together with win rate, volatility, costs and how consistently the strategy can execute it.
Can a low win rate strategy still work?
Potentially, if average wins are sufficiently larger than average losses and execution remains disciplined.
Does spread affect risk/reward?
Yes, especially for short-duration trades where the spread is a meaningful part of the target distance.
Continue learning
Risk note: This material is educational and does not constitute investment advice. Trading and digital-asset activity can result in losses. Use appropriate risk controls and only commit funds you can afford to lose.