Risk reward ratio is the relationship between how much a paper trade is planned to risk and how much it is planned to make. In Trading Boy, it belongs in the simulated pre-trade plan, the journal, and the post-trade review, not in a live execution claim.
A risk reward ratio compares the possible reward of a planned trade with the possible risk if the trade reaches its stop. In paper trading, the number is useful because it forces the trader or AI agent to write the entry, invalidation, and target before the outcome is known.
For example, a simulated long trade with a 100 entry, 95 stop, and 115 target risks 5 points to seek 15 points. The planned reward is three times the planned risk, so the trade has a 3:1 risk reward ratio, often written as 3R. That does not make the setup good by itself. It only describes the shape of the plan.
Trading Boy treats this as a paper-first review metric. Trading Boy does not execute live trades, hold funds, or provide financial advice. The goal is to make simulated decisions easier to inspect, compare, and improve before anyone considers separate live-trading tools outside Trading Boy.
The basic formula is: risk reward ratio = planned reward / planned risk. The inputs should come from the paper-trade plan, not from hindsight after the result is known.
| Term | How to calculate it | Paper-trading review question |
|---|---|---|
| Entry | The simulated price where the paper trade would start. | Was the entry chosen from a written setup, alert, or agent rule? |
| Stop | The simulated price where the original idea is invalidated. | Is the stop based on thesis failure, or only placed to create a better-looking ratio? |
| Risk | For a long plan, entry minus stop. For a short plan, stop minus entry. | Would normal volatility hit the stop before the setup has room to work? |
| Target | The simulated price where the planned reward is measured. | Is the target realistic for the market, timeframe, and setup being practiced? |
| Reward | For a long plan, target minus entry. For a short plan, entry minus target. | Does the target fit the evidence, or is it stretched to make the ratio attractive? |
| Ratio | Reward divided by risk, such as 15 / 5 = 3.00R. | Does the ratio pass the rule threshold and still make sense in context? |
Before logging a simulated entry, write the entry, stop, target, and setup reason. Then calculate the ratio with the risk-reward calculator. If the ratio misses the agent rule, the paper trade can be skipped or tagged as a rule exception.
This step pairs well with the pre-trade review workflow, the trade entry checklist, and the pre-trade checklist template. Those pages keep the ratio connected to a real plan instead of a loose number.
After the paper trade closes, compare the planned ratio with the actual simulated behavior. The result may show that the agent moved the stop, took profit early, held past invalidation, or chose a target that rarely gets reached.
Record that evidence in the AI trading journal or the paper trading journal template. Then close the loop with the post-trade review template and trading feedback loop.
Plan: An AI paper trading agent watches a crypto breakout setup. The simulated entry is 50, the stop is 47.50, and the target is 57.50. The planned risk is 2.50 points, the planned reward is 7.50 points, and the risk reward ratio is 3:1.
Review: The ratio passes the written minimum, but the trader still checks whether the target is realistic. If recent paper samples show that similar breakouts often stall near 55, then the 57.50 target may be too optimistic. The ratio is mathematically clean, but the plan may need a better target or a partial-exit rule.
Next action: The simulated trade stays in the journal with a target-realism tag. The agent rule is not changed from one result. The next sample is reviewed against the same risk reward threshold, the same stop logic, and the same target notes.
Risk reward ratio is easy to calculate, which makes it easy to overuse. In paper trading, a strong workflow treats it as one review field among several: setup quality, probability, sample size, drawdown, trade frequency, and rule fit.
A high ratio can hide weak thinking. A 5:1 paper trade may look impressive if the target is far away, but the stop may sit inside ordinary noise or the target may be beyond normal movement for the timeframe. A lower ratio can also be reasonable if the setup has a higher tested hit rate, though that conclusion should come from paper evidence rather than hope.
The ratio should also be reviewed with sizing. Use the position size calculator to connect stop distance with simulated account risk, and use the maximum drawdown calculator to understand the effect of losing streaks in a paper sample. Then use the risk review workflow to decide whether the agent stayed inside its written limits.
For AI agents, this matters because automated paper decisions can produce a lot of samples quickly. A fixed minimum ratio can reduce low-quality entries, but it should not replace rule review. Pair the metric with AI trading agent rules, AI agent risk controls, and the AI paper trading agent workflow.
Use this glossary page as the concept reference, then move into the pages that turn the concept into a repeatable paper workflow.
Start in the paper trading hub, define the agent, and write entry rules before judging any result.
Use the calculator to check reward divided by risk from the planned entry, stop, and target.
Use risk controls and review plus paper-trading limitations to keep conclusions bounded.
A risk reward ratio in paper trading compares the planned reward from entry to target with the planned risk from entry to stop. It helps evaluate simulated trade plans before money is at risk, but it does not predict whether a setup will work.
There is no universal good ratio. Many traders test thresholds such as 2:1 or 3:1, but the useful threshold depends on setup type, win rate, target realism, stop placement, fees, and review evidence.
No. Trading Boy helps users review paper-trading workflows. Trading Boy does not execute live trades, hold funds, or provide financial advice.
Recording the planned ratio lets a trader compare the original plan with the simulated result. That makes it easier to review whether stops were moved, targets were realistic, and rules were followed.
Trading Boy pages are educational product resources for simulated practice. They do not create live orders, custody assets, recommend securities, or promise future returns. Keep risk reward ratio in the paper-trading review loop unless you are separately using licensed, live-trading infrastructure outside Trading Boy.