Risk-reward ratio (RR) is the ratio of potential profit to potential loss on a planned trade. If you're risking $1 to make $3, your RR is 3:1 — sometimes written as 3R potential.
Critical distinction from R-multiple: RR is set at entry, R-multiple is measured at exit. RR is the trade you planned; R-multiple is the trade you got. A trade with a 3:1 RR can close at +0.5R because you took the trade off early, or at +3R if your target hit, or at −1R if your stop was clean.
Common RR ranges in trader journals: scalpers operate at 1:1 to 1.5:1 with high win rates; swing traders typically aim for 2:1 to 4:1 with lower win rates; trend traders may plan trades at 5:1 to 10:1 and accept win rates under 35%. The math has to balance — winRate × avgWin ≥ lossRate × avgLoss — for the strategy to be positive expectancy.
The mistake most traders make: setting an unrealistic RR target that the market structure won't actually pay. A 5:1 plan on a tight range-bound name is fantasy; price simply will not move that far before something else happens. RR has to be calibrated to the actual volatility of the instrument, not the trader's hopes.