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Module C · Risk Management·Lesson 3

Risk-Reward Ratio

Why a 1:2 minimum RR changes everything

4 sections · 3 quiz questions · ~5 min read

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What Is Risk-Reward?

Risk-Reward Ratio (RR) compares your potential loss to your potential profit. A 1:2 RR means you risk 30 pips to potentially gain 60 pips. With a 1:2 RR, you only need to win 34% of trades to break even.
EntryTPSL+60 pips (Reward)-30 pips (Risk)Risk:Reward = 1:2

The Power of 1:2+

With 1:2 RR and 50% win rate: 5 wins × $200 = $1,000, 5 losses × $100 = $500. Net profit = $500 from 10 trades. Good RR means you can be wrong more often than right and still be profitable.
Wick stands by a balance scale with risk 30 pips on one side and reward 60 pips on the heavier side, teaching what a 1:2 risk to reward ratio looks like.Risk30 pipsReward60 pips?
Wick saysA 1:2 ratio means you risk 30 pips to aim for 60 pips.

Calculating RR Before Entry

Before entering any trade: identify your stop loss (risk) and take profit (reward). Divide reward by risk. If it's less than 1:1.5, skip the trade. Professional traders typically aim for 1:2 or higher.
Wick shows a calculator reading RR 2.0 under the formula reward divided by risk, 60 divided by 30, teaching how to check the ratio before any trade.Reward ÷ risk = 60 ÷ 30 =2RR 2.0
Wick saysDivide reward by risk before you enter; under 1.5, the plan says skip it.

RR + Win Rate = Expectancy

Your trading expectancy = (Win% × Avg Win) - (Loss% × Avg Loss). A system with 40% wins and 1:3 RR is more profitable than 70% wins with 1:0.5 RR. Focus on RR quality, not just win rate.
Wick points at a chalkboard with the expectancy formula, win percent times average win minus loss percent times average loss, showing both numbers matter together.Expectancy(Win% × Avg win)minus (Loss% × Avg loss)
Wick saysExpectancy weighs how often trades work against how big the wins and losses are.
Quick check

Did it stick?

Try to answer each one before you peek at the explanation.

1

With a 1:2 risk-reward ratio, how many pips do you target if your stop is 25 pips?

2

With a 1:3 risk-reward ratio, you need to win at least 50% of trades to be profitable.

3

You risk $100 per trade. After 10 trades (6 losses, 4 wins at 1:2 RR), what's your net P&L?