ForecastingStocks

The risk-reward ratio compares what you stand to lose against what you stand to gain on a trade. If you risk US$100 to make US$300, your reward-to-risk is 3:1 (often written R-multiple: a 3R target).

Computing it from your levels

Entry          = 100
Stop-loss      = 95    ->  risk = 5 points
Take-profit    = 115   ->  reward = 15 points
Reward-to-risk = 15 / 5 = 3 : 1

You defined the risk (5 points) when you placed the stop; the reward depends on a realistic target, not a hopeful one.

Why it changes the win rate you need

A higher reward-to-risk lowers the percentage of trades you must win to break even:

1 : 1  ->  need to win more than 50% to profit
2 : 1  ->  need to win more than 33% to break even
3 : 1  ->  need to win more than 25% to break even

At 3:1 you can be wrong three times out of four and still come out ahead. That is the quiet power of demanding good reward-to-risk: it removes the pressure to be right often.

Use it as a filter

Set a minimum reward-to-risk — many traders refuse anything below 2:1 — and simply pass on trades that do not clear it. A setup with a beautiful entry but only 0.5:1 reward-to-risk is a bad trade no matter how confident you feel, because the arithmetic is working against you. The ratio turns "do I like this trade?" into a number you can say no to.