Understanding Risk/Reward
The risk-to-reward ratio compares how much you stand to lose (risk) versus how much you stand to gain (reward). A 1:2 R:R means you're risking 1 unit to potentially gain 2 units.
The breakeven win rate tells you the minimum percentage of trades you need to win to break even at that R:R. With a 1:2 ratio, you only need to win 33.3% of trades to break even — meaning you can be wrong two-thirds of the time and still not lose money.
Most traders aim for at least 1:2. ICT methodology often targets 1:3 or higher by identifying high-probability setups at key institutional levels. The higher your R:R, the fewer winning trades you need.
Not necessarily. The key is that your average R:R across many trades, combined with your win rate, produces a positive expectancy. Some traders use variable targets based on market structure.