The risk-reward ratio compares what a trade could lose with what it could gain.
Risk = Entry − Stop-loss Reward = Target − Entry R:R = Reward ÷ Risk
Example. Buy at ₹1,000, stop at ₹950, target ₹1,100. Risk is ₹50, reward is ₹100 — a 1:2 risk-reward.
Why it matters more than accuracy
Many new traders aim to be right most of the time. But profit depends on win rate and risk-reward together.
With a 1:2 ratio, you can be wrong more often than you are right and still come out ahead:
| Win rate | Risk-reward needed just to break even |
|---|---|
| 30% | about 1:2.3 |
| 40% | 1:1.5 |
| 50% | 1:1 |
| 60% | about 1:0.67 |
And the reverse: a trader who is right 70% of the time but risks ₹100 to make ₹30 still loses money over time.
Expected value
Putting both together gives the expected value of a trade — what it earns on average if repeated many times:
Expected value = (Win rate × average win) − (Loss rate × average loss)
Example: 40% wins of ₹2,000 and 60% losses of ₹1,000. (0.4 × 2,000) − (0.6 × 1,000) = +₹200 per trade on average — before costs.
Costs matter: brokerage, STT, GST and slippage come off every trade, and they weigh more heavily on small targets and frequent trading.
Using R:R sensibly
- The target must be realistic. A 1:5 ratio means nothing if price has a wall of selling just above entry. Targets usually come from levels on the chart, not from the ratio you want.
- Your real win rate is the honest input. Track your trades; most traders overestimate how often they are right.
- Compare like with like. R:R is set before entry, from the planned stop and target — not adjusted after the trade moves.
Where NEOGreeks helps
The Smart Money Board shows the nearby levels — prior highs and lows, open gaps, demand and supply zones — that traders look at when judging whether a target is realistic or a stop is sensible.