A fundamental concept in trading and risk management, which is the relationship between the risk-to-reward ratio (Risk/Reward Ratio) and the percentage of winning trades required to break even (Break-Even Win %).

The main idea is that the higher the potential return compared to the risk in each trade, the fewer winning trades you need to cover your losses and break even (no profit or loss).

Explanation of the three cases in the image:

1. Risk-to-reward ratio 1:3 (top of the image)

•Meaning: In each trade, you are risking one unit of capital (for example, $100) with the aim of achieving a profit of 3 units ($300).

•Break-even percentage (Break-Even Win %): 25%

•Clarification: This means you only need to have 25% of your trades winning to cover the losses from other trades.

◦Example: If you made 4 trades, lost 3 of them (loss of 3 units), and won only 1 trade (profit of 3 units), you would have broken even. Any profit above this percentage is considered net profit.

2. Risk-to-reward ratio 1:2 (middle of the image)

•Meaning: Here, you are risking one unit aiming to achieve a profit of two units (risking $100 to win $200).

•Break-even percentage (Break-Even Win %): 33%

•Clarification: You need to have 33% of your trades (or 1 out of every 3 trades) winning to break even.

◦Example: If you made 3 trades, lost two (loss of 2 units), and won one (profit of 2 units), you have reached the break-even point.