Risk-reward and win rate: why neither one wins on its own

Two claims get repeated in almost every trading community. One says: "Only take trades with at least 1:2 risk-reward, and you can be wrong most of the time and still make money." The other says: "Win rate is everything, find a strategy that wins 80% of the time."

Both are half true, and the missing half is where traders lose money. This lesson puts the two numbers together, shows what a strategy really needs, and then tests the most popular idea of all, that a bigger target makes a trade better, on two years of real EURUSD prices.

Two numbers, one result

Risk-reward compares what a trade can make to what it can lose. A trade with a 20-pip stop and a 40-pip target has a reward of 2 for a risk of 1, written 1:2 or "2R".

Win rate is the share of your trades that reach the target instead of the stop.

Neither one tells you whether a strategy makes money. What does is the average result per trade, often called expectancy:

We measure wins and losses in R, the amount risked, so that the answer works for any account size.

A few big wins can balance many small losses, or many small wins can balance a few big losses. The scale only tips your way when one side is really heavier.

The break-even win rate

For any risk-reward, there is a win rate where the scale is exactly level, and you neither make nor lose money before costs:

At 1:1 you need to win 50% of the time. At 1:2 you only need 33.3%. At 1:3, 25%. And at 1:0.5, where the target is half the size of the stop, you need 66.7%.

So the first claim is true as far as it goes: with a 1:2 target you can be wrong most of the time. But it hides a question. Does a bigger target let you keep the same win rate?

A bigger target is harder to reach

A target twice as far away is, of course, harder to reach. The question is how much harder. If prices moved with no pattern at all, the math says the win rate would fall exactly to the break-even line, and risk-reward would make no difference.

We tested this on real prices. From October 2024 to September 2026, we opened a pretend EURUSD trade at the start of every hour, half of them buys at the ask and half sells at the bid, so the spread is included. Every trade had a 20-pip stop. We ran the whole test three times, with the target at 20, 40 and 60 pips, and recorded which one price touched first. That is 24,490 trades per test.

With a 20-pip target, 48.7% of the trades won, just under the 50% needed to break even. Doubling the target to 40 pips cut the win rate to 33.2%, right on the 33.3% break-even line. At 60 pips, 25% won, where 25% was needed.

In each case, the bigger target was paid for, almost exactly, with a lower win rate. The average result stayed around zero: −0.026R, −0.005R and 0.000R per trade. The small losses at the shorter targets are the spread.

So the honest version of the first claim is: a 1:2 target lets you be wrong most of the time, but only if your entries are good enough to win more than 33.3% of the time at that distance.

High win rate, low profit

Now the second claim, that win rate is everything. Look at two traders over 100 trades, each risking $100 per trade:

• Trader A wins 70% of the time, but takes profit at half the stop distance (a reward of 0.5R). Expectancy: 0.70 × 0.5 − 0.30 × 1 = 0.05R per trade, or $500 after 100 trades.
• Trader B wins only 35% of the time, with a reward of 2.5R. Expectancy: 0.35 × 2.5 − 0.65 × 1 = 0.225R per trade, or $2,250 after 100 trades.

Trader A is right twice as often and earns less than a quarter as much. And Trader A's edge is thin: break-even at 1:0.5 is 66.7%, so if the win rate slips from 70% to the break-even line, the profit is gone.

Trader B has a different problem: losing streaks. At a 35% win rate, long runs of losses are part of the deal. A strategy that wins 30% of the time has a 58% chance of 10 losses in a row somewhere in 100 trades. Lesson 6 looks at what that feels like and how to tell it apart from a broken strategy.

Costs hit tight stops hardest

Spreads and commissions are paid on every trade, win or lose, and they are paid in pips. So the tighter your stop, the bigger they are compared to your risk.

Say your costs on EURUSD are a 1.0-pip spread plus a $7 commission per lot for the round trip, which works out to another 0.7 pip. That is 1.7 pips per trade. Here is what it does at a 1:2 risk-reward:

With a 50-pip stop the costs are 0.03R per trade and the break-even win rate barely moves, from 33.3% to 34.5%. With a 5-pip stop the costs are 0.34R per trade, and you now need to win 44.7% of the time just to break even. Combine that with lesson 4, where a 5-pip stop was touched within 4 hours 72% of the time, and you can see why very tight stops are so hard to make work.

How to use this

1. Know your two numbers. Write down your real win rate and your real average win and loss in R from your last 50 to 100 trades. Not the ones you remember, the ones in your history.
2. Work out your expectancy. If it is not clearly above zero after costs, a different target will not fix it. The entry is the problem.
3. Choose a target your entries can reach. A target that looks good on paper but that price rarely reaches only lowers your win rate.
4. Respect the streaks your choice brings. A low win rate is fine if you size for the long streaks it will produce (lesson 2).

Educational content, not financial advice. Trading forex and CFDs carries a high risk of losing money. Examples use round numbers to show the method; check your own broker's contract specifications and your firm's rules.