Risk/Reward Explained

Risk/reward compares two distances: entry to stop, and entry to target. If the target is twice as far as the stop, the ratio is 1:2. That is all it says.

What it does not say

It says nothing about how likely either level is to be reached. A 1:5 setup where the target requires an unusual move is worse than a 1:1.5 setup where both levels sit inside the instrument's normal range.

Why it still matters

Because it sets the arithmetic of a series of trades. With a 1:2 ratio you can be wrong more often than right and still break even. With a 1:0.5 ratio you need to be right most of the time just to avoid losing.

Reading it alongside timeframe

Always read the ratio together with the stated timeframe and the instrument's typical range over that period. A target that is plausible in six weeks is not plausible in two days.