Risk-reward ratio in forex
Risk-reward ratio is the relationship between how much you risk per trade and how much you target to gain. A 1:1.5 ratio means risking $100 to gain $150. Over many trades, this determines whether a strategy is profitable regardless of win rate.
Why risk-reward matters more than win rate
Consider two strategies:
- Strategy A: 60% win rate, 1:1 risk-reward → 0.60×1 − 0.40×1 = 0.20 expectancy
- Strategy B: 45% win rate, 1:2 risk-reward → 0.45×2 − 0.55×1 = 0.35 expectancy
Strategy B wins less often but makes more money per trade. Expectancy is what matters.
How SignalsTrades uses 1:1.5
Every signal from SignalsTrades targets 1:1.5, TP is 1.5× further from entry than SL. At a 45% win rate (expected in any algorithmic system), this produces positive returns over time.
Calculating your expected return
Formula: Expectancy = (Win rate × Avg TP distance) − (Loss rate × Avg SL distance)
With 45% win rate and 1:1.5 ratio: (0.45 × 1.5) − (0.55 × 1.0) = 0.675 − 0.55 = +0.125 per trade on average.
What is considered a good risk-reward ratio?
Most professional traders target 1:2 or better for swing trades and 1:1.5 for day trades. Below 1:1 is generally not sustainable without a very high win rate (70%+).
Should I change the TP and SL from what the signal provides?
The provided TP and SL are calculated to maintain a healthy risk-reward ratio. Widening SL or tightening TP changes the ratio and affects expectancy. Modify only with a clear reason.