The planned reward of a trade divided by its planned risk, set by the distance to target versus the distance to stop.
Risk and reward on one trade. One trade on a price scale: the entry sits 2.00 points above the stop and 6.00 points below the target, so the shaded reward band is three times the risk band. The ratio compares what is lost if the stop is hit with what is gained if the target is reached.
A trade with a $2 stop and a $6 target has a 1:3 risk-reward (or a 3R target). Higher ratios need a lower win-rate to be profitable; lower ratios need a higher one. Neither is better on its own; the combination is what produces positive expectancy.
Traders often overstate their ratio by using unrealistic targets. The honest version uses your actual average win and loss from a trading-journal.
Example: at a 1:3 ratio you break even winning 25% of the time. At 1:1 you need 50%. At 3:1 (risking $3 to make $1) you need 75%.