Risk to reward is the ratio between the amount a trade risks, the distance from entry to stop, and the amount it aims to win, the distance from entry to target. A trade with a 50-pip stop and a 100-pip target has a risk to reward of 1:2, and its target is described as 2R, two units of risk.
The arithmetic
Reward size and win rate are tied together. The win rate a strategy needs to break even before costs is one divided by one plus the reward in R. At 1R that is 50 per cent. At 2R, 33 per cent. At 3R, 25 per cent. At half an R, 67 per cent.
So the popular advice never to take a trade below 1:2 or 1:3 is incomplete. A 3R target hit 20 per cent of the time loses money. A 1R target hit 60 per cent of the time makes it. What matters is the combination, and the market decides the win rate, not the trader.
Why larger targets are hit less often
The further a target is from the entry, the less often price reaches it before either the stop or the time limit. Widening the target from 1R to 3R does not triple the profit; it reduces the win rate, usually by more than the arithmetic needs to stay even, unless the strategy has a genuine reason to expect large moves. Trend-following strategies do, and they run with low win rates and large R. Mean-reversion strategies do not, and they run with high win rates and small R. Each is right for its own kind of edge.
Measured, not chosen
A trader can set the target wherever they like. The ratio that matters is the realised one: the average winning trade against the average losing trade over many trades, which includes the trades stopped early, the ones closed at a time limit, and the slippage on both sides. A strategy with 2R targets often realises around 1.5R on winners, because some are cut short, and loses a little more than 1R on losers, because stops slip. The realised ratio and the realised win rate, taken together, are the strategy's expectancy, which has its own page.
Two strategies each take 100 trades risking £100. Strategy A aims for 3R and hits it 28 per cent of the time: 28 winners at £300 is £8,400, 72 losers at £100 is £7,200, net £1,200. Strategy B aims for 1R and hits it 58 per cent of the time: 58 winners at £100 is £5,800, 42 losers at £100 is £4,200, net £1,600. The strategy with the worse ratio made more money, because its win rate more than compensated. Strip £10 of costs from each trade and both lose £1,000, leaving A at £200 and B at £600. The ratio told you nothing on its own.
An EA's description will often state its targets in R, and that is useful, but the figures to look for on its live record are the average winner, the average loser and the win rate, from which the realised ratio follows. An EA whose stated targets are 2R and whose record shows average winners barely larger than average losers has a lot of trades being cut short or slipping, and that is worth understanding before buying it.
Be sceptical of EAs marketed on a very favourable ratio, "1:5 risk to reward", without the win rate beside it, and of those marketed on a very high win rate without the ratio. Either number alone is a marketing choice. Both together are a result.