The risk-reward ratio is a simple calculation that compares how much money you stand to lose on a trade to how much you could potentially gain. It expresses the relationship between your potential profit (reward) and your potential loss (risk) as a ratio, helping you evaluate whether a trade setup offers enough upside to justify the downside. Traders use this ratio to maintain discipline and ensure they're not risking large amounts for small potential gains, which can erode capital over time even with a decent win rate.
Mantis tracks risk-reward ratio automatically — log each trade once and the number is calculated for you on iPhone.
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Risk-reward ratio = Potential Loss / Potential Gain. For example, if you buy a stock at $50 with a stop-loss at $48 (risking $2) and a profit target at $56 (potential gain of $6), your risk-reward ratio is 2 ÷ 6 = 0.33, often expressed as 1:3. This means for every dollar you risk, you're aiming to make three dollars. Some traders flip this and say "reward-to-risk is 3:1" — both refer to the same setup, just expressed inversely.
Risk-reward ratio helps you filter out trades where the potential profit doesn't justify the risk you're taking. A favorable ratio means you can be wrong more often than you're right and still be profitable overall. However, the ratio alone doesn't guarantee success — it says nothing about the probability of reaching your target versus hitting your stop-loss. A trade with a great 1:5 risk-reward ratio is still a poor bet if it only has a 10% chance of working out. Always consider win rate alongside risk-reward when evaluating trade quality.
Many traders aim for a minimum of 1:2 (risking $1 to make $2) or better, with 1:3 often cited as a solid benchmark for swing trades. Day traders might accept tighter ratios like 1:1.5 if they have higher win rates and faster trade turnover. There's no universal "good" number — it depends entirely on your win rate and strategy. A 1:1 ratio can be profitable if you win 60% of the time, while a 1:4 ratio might lose money if your win rate is only 15%. The key is that your average wins, multiplied by your win rate, must exceed your average losses times your loss rate.
Not necessarily. While a 1:10 ratio sounds attractive, it usually means your profit target is very far from your entry, which lowers the probability of the trade working out. Extremely high ratios often come with very low win rates. The ratio must be balanced with realistic probability — a 1:2 setup with a 50% win rate will outperform a 1:8 setup with a 10% win rate.
Risk-reward ratio measures the size of your average win compared to your average loss, while win rate measures how often you win versus lose. Both matter for profitability. You can have a terrible win rate (say 30%) and still make money if your risk-reward ratio is excellent (like 1:4), because your few wins are much larger than your many small losses. Conversely, a high win rate with a poor risk-reward ratio can still lose money overall.
Always before. The risk-reward ratio is a planning tool that helps you decide whether a trade is worth taking in the first place. You determine your entry price, stop-loss, and profit target ahead of time, calculate the ratio, and only enter if it meets your criteria. Calculating it after entry doesn't help with decision-making — by then you've already committed capital.
While you can adjust exit points as new information emerges, don't move your stop-loss further away just to make the ratio look better — that increases your actual risk. Moving your profit target closer to "improve" the ratio defeats the purpose, as you're settling for less reward. The ratio should reflect your genuine trade plan. If price action invalidates your original thesis, it's often better to exit rather than manipulate levels to preserve a trade.
The original ratio describes your plan at entry. Once the trade is live and price moves in your favor, your actual risk-to-reward changes continuously. If you're halfway to your target and move your stop to breakeven, you've now reduced your risk to zero while reward remains, dramatically improving your live ratio. Some traders recalculate at key levels to decide whether to hold or take partial profits, but the initial ratio is what determined whether the trade was worth entering.
Important: Mantis is a trading journal and analytics tool. This page is not investment advice, not financial advice, and not a recommendation to buy or sell any security or instrument. Trading involves risk; past performance does not guarantee future results. Consult a qualified professional before making financial decisions.