What is the reward against the risk?

By now you have an entry and a stop. The distance between them is your risk, and everything else in this chapter is measured against it. Call that distance one R. A target two R away means you stand to make twice what you would lose. The fifth question is whether the target the chart offers is far enough, in R, to be worth the trade at all. Most of the time it is not, and that is the point of asking.

Where the target comes from

The target is not a wish. It comes from the same place the zone did: structure. The next zone in the direction of the trade. The prior swing high or low. The top or bottom of the range. Measure from the entry to the first place price is likely to hesitate. That is the first target. If there is another obvious level beyond it, that is the second.

Be honest about the first hesitation point. If there is a resistance zone one R above your entry, that is where the trade will most likely stall, whatever the level beyond it looks like. Using the far target to justify the trade while ignoring the near one is how good-looking setups turn into scratches.

Why one-to-one bleeds you

A one-to-one setup, where you risk a dollar to make a dollar, sounds fair. It is not. Commissions, the bid-ask spread, and slippage on the stop mean you actually make slightly less than a dollar when right and lose slightly more than a dollar when wrong. To just break even you need to win more than half the time, every month, forever. Nobody reads a chart that well. So the account does not blow up on one-to-one trades; it leaks, a little every week, and it feels like bad luck.

The arithmetic on the other side is what makes trading survivable. At two R, you break even at roughly a 34 percent win rate before costs. At three R, roughly 25 percent. You can be wrong most of the time and still come out ahead, as long as the winners are the size you planned and the losers are not bigger than one R. That last clause is the whole reason the stop from chapter four is never moved.

Where the risk hides

The risk in R is only honest if the stop is honest. Two things wreck it. The first is a stop moved inside the zone to make the numbers work: the setup now shows three R on paper and gets stopped out by the first wick. The second is an entry taken late, after the trigger, so the stop is now far away and what was two R is one. If the reward against the risk only works with a stop you would not really use or an entry you already missed, it does not work.

The trade you do not take

Expect most setups to fail this question. Zones are often close together, and a trade from one to the next is frequently under two R. That is fine. The checklist is not here to find you a trade every day; it is here to keep you out of the ones where even a good read of the chart cannot pay. A calendar with three trades a week that passed all seven questions beats one with fifteen that passed four.

Example

This is a made-up example. XYZ, entered at 152 with the stop at 146.80. One R is 5.20. The next daily zone above is the prior swing high around 162 to 163. From 152 to 162 is 10 points, which is a little under two R. Beyond that, the top of the run at 175 is 23 points, about four and a half R. The first target is borderline; the second is generous. That is a trade worth taking, with the plan to take some off near 162 and hold the rest for 175, which is chapter seven's business.

Now ABC from chapter two, if you had ignored the trend and gone long at 41.20 with a stop at 40.40, risk 0.80. The daily resistance zone starts at 41.50, 0.30 away. That is under half an R to the first hesitation point. Even if the trade works, it cannot pay. Pass, and note that question two had already said no.

The question, answered

One R is the distance from entry to stop; targets are measured in R, to the next structure.
One-to-one trades lose slowly to costs unless you win more than half the time, which nobody does reliably.
Two R to the first realistic target is a fair minimum; under that, there is no trade.
The numbers only count if the stop and entry are the ones you would actually use.