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Risk and reward: why you can be wrong half the time and still win
Good traders lose often. What keeps them ahead is that their wins are bigger than their losses. Here is the simple maths behind it.
Updated Oct 31, 2026
Basahin sa FilipinoWhat does "risk and reward" mean?
Before a trade, you compare how much you could lose (to your stop-loss) with how much you hope to make (to your target).
Buy at $100 Stop-loss at $90 → risk: $10 Target at $130 → reward: $30 Risk to reward: 1 to 3 (written 1:3)
How can I lose most trades and still make money?
Take 10 trades, each risking $10 to make $30 (1:3). You win only 4 of them.
- 14 wins × $30 = +$120
- 26 losses × $10 = −$60
- 3Total after 10 trades: +$60, while being wrong 6 times out of 10.
How do win rate and ratio work together?
10 trades, each risking $10. Your total after all 10:
| Trades you win | Win $10 (1:1) | Win $20 (1:2) | Win $30 (1:3) |
|---|---|---|---|
| 3 of 10 | −$40 | −$10 | +$20 |
| 4 of 10 | −$20 | +$20 | +$60 |
| 5 of 10 | $0 | +$50 | +$100 |
| 6 of 10 | +$20 | +$80 | +$140 |
Fees are left out to keep it simple; they shave a little off every row.
So should I always aim for big targets?
Not blindly. The further away your target, the less often the price reaches it. A 1:3 trade that almost never hits its target is worse than a 1:2 that often does.
- Pick targets the price has a fair chance of reaching, like a recent high.
- Skip trades where the possible loss is bigger than the possible gain.
- Keep notes, so you learn your real win rate over time.