I am surprised to see people keep arguing the basic Risk:Reward concept and the usefulness of it. I think it should not be a very complicated concept to deal with.
The goal of trade is to make profit. It is not necessary to have a minimum RRR, but the combination of RRR and winrate has to be profitable, and of course the more profitable, the better.
Note that RRR is Risk:Reward, the bigger is the value, the risker is a trade.
In a simplified model, breakeven trades are ignored and each trade risk the same amount and target for the same amount of reward.
Thus,
Average Profit/Loss per trade = WinRate * Reward - (100% - WinRate) * Risk
For a profitable method:
WinRate * Reward - (100% - WinRate) * Risk > 0
WinRate - (100% - WinRate) * RRR > 0
Therefore,
...................RRR
WinRate > ----------
................(1 + RRR)
For example, for in a trading method, a trader risk 5 unit for 1 unit reward.
The WinRate has to be achieved to be profitable is 5/(1+5) = 83.3%
If such a WinRate is achieved, it is a profitable method.
Nevertheless, to answer how profitable a method is, we need to make use of the concept of profit factor.
.
The goal of trade is to make profit. It is not necessary to have a minimum RRR, but the combination of RRR and winrate has to be profitable, and of course the more profitable, the better.
Note that RRR is Risk:Reward, the bigger is the value, the risker is a trade.
In a simplified model, breakeven trades are ignored and each trade risk the same amount and target for the same amount of reward.
Thus,
Average Profit/Loss per trade = WinRate * Reward - (100% - WinRate) * Risk
For a profitable method:
WinRate * Reward - (100% - WinRate) * Risk > 0
WinRate - (100% - WinRate) * RRR > 0
Therefore,
...................RRR
WinRate > ----------
................(1 + RRR)
For example, for in a trading method, a trader risk 5 unit for 1 unit reward.
The WinRate has to be achieved to be profitable is 5/(1+5) = 83.3%
If such a WinRate is achieved, it is a profitable method.
Nevertheless, to answer how profitable a method is, we need to make use of the concept of profit factor.
.