Some traders believe that risk-reward ratios don’t matter, thinking that focusing only on win rate or market timing is enough for trading success. However, this belief is one of the most dangerous misconceptions in trading. Risk-reward ratios are a fundamental part of profitable trading, ensuring that even when losses occur — which they inevitably do — overall profitability is still achievable.

The idea that risk-reward ratios don’t matter ignores the reality that trading is a game of probabilities, where managing losses and maximising gains is crucial to long-term success.

What Is a Risk-Reward Ratio?

A risk-reward ratio measures how much a trader stands to gain versus how much they are willing to lose on a trade:

• Risk: The distance from entry to stop-loss.
• Reward: The distance from entry to take-profit.

For example, risking £100 to potentially make £300 results in a 1:3 risk-reward ratio. This means you only need to win about 25% of the time to break even, assuming consistent execution.

Risk-reward ratios help structure trades logically, removing emotional bias from the decision-making process.

Why Risk-Reward Ratios Are Essential

Risk-reward ratios matter for several critical reasons:

• They protect against losing streaks: A good risk-reward ratio ensures that even with a low win rate, you can still be profitable.
• They allow realistic expectations: Understanding potential gains and losses prevents emotional decision-making.
• They enable risk management: Traders can design strategies that fit their risk tolerance while aiming for positive expectancy.
• They make profitability possible: Without positive risk-reward setups, traders must maintain an impossibly high win rate to succeed.

Thus, dismissing the importance of risk-reward ratios almost guarantees failure over the long term.

The Dangers of Ignoring Risk-Reward Ratios

Traders who ignore risk-reward considerations often fall into several traps:

• Chasing tiny profits: Winning many small trades but suffering occasional large losses that wipe out gains.
• Overtrading: Taking every minor opportunity without a structured plan leads to unnecessary risk.
• Emotional trading: Without a clear reward relative to risk, emotional decisions dominate trading behaviour.
• Poor risk management: Without consistent risk-reward planning, traders are more likely to hold onto losing trades and cut winners short.

Thus, the belief that risk-reward ratios don’t matter leads to unstable, emotional, and unprofitable trading.

How to Use Risk-Reward Ratios Effectively

To make the most of risk-reward ratios:

• Aim for at least 1:2: Risk £1 to make at least £2 wherever possible to maintain positive expectancy.
• Focus on quality setups: Only take trades where the reward justifies the risk based on market structure and probabilities.
• Stay consistent: Stick to planned stop-losses and take-profits to avoid skewing your risk-reward balance.
• Adjust for context: In trending markets, aim for larger rewards; in choppy markets, be more conservative.

Using risk-reward ratios intelligently ensures that losses are manageable and profits are scalable.

Examples of Risk-Reward in Practice

• Scenario 1: A trader wins 40% of their trades but uses a 1:3 risk-reward ratio. They remain highly profitable over time.
• Scenario 2: A trader wins 70% of their trades but risks £3 to make £1 each time. A few losses can erase months of gains.
• Scenario 3: A trader risking 1% per trade while targeting 2% returns needs only a modest win rate to achieve strong growth.

Each example highlights the critical role that risk-reward ratios play in determining profitability.

Conclusion

It is completely wrong to believe that risk-reward ratios don’t matter. In reality, they are one of the most important pillars of successful trading. By structuring trades with favourable risk-reward ratios and sticking to disciplined execution, traders create systems that can survive losing streaks and capitalise on winning trades. Without risk-reward control, even high win rates cannot guarantee success.

To master risk management and learn how to build professional-grade trading strategies, enrol in our expert-designed Trading Courses today.