Risk-reward terms, defined
Plain definitions for the language used across this site. Where a term has a tool or a test behind it, the entry points to the page that develops it.
The terms
Risk-reward ratio
The reward distance of a trade divided by its risk distance - target-minus-entry over entry-minus-stop for a long. A 3:1 ratio risks one unit to make three.
Break-even win rate
The win rate at which a strategy exactly breaks even at a given ratio: one divided by one-plus-the-ratio. The honest companion to any ratio. See: the calculator.
Risk per trade
The amount of capital you accept losing if the stop is hit, usually set as a small fixed percent of the account so no single trade can do lasting damage.
Stop-loss
The price at which you concede the trade idea was wrong and exit. Placed where the idea fails, not where a loss feels tolerable. See: common risk-reward mistakes.
Target
The price at which you plan to take profit. A target set only to flatter the ratio, rather than at a level the market respects, makes the ratio a fiction.
Position size
How many units to trade, derived from your cash risk divided by the per-unit stop distance - the bridge from a ratio to an order. See: position sizing from a ratio.
Conviction grade
An A-to-D label marking how strong a setup is against its own engine's measured returns, encoding expected reward versus risk. There is no E grade. See: grades that are measured.
Cryptographic timestamp
A hash of a setup written to a public ledger at release, proving the entry, stop, target and grade existed in that exact form before the trade resolved. See: locked at release.
Drawdown
The deepest peak-to-trough fall over a period - a truer read on risk than the headline return, and the figure a ratio alone never shows.
Expectancy
The average profit or loss per trade over many trades: win rate times average win, minus loss rate times average loss. The ratio and the win rate feed straight into it.