Consider this example: A trader purchases 100 shares of XYZ Company at $20 and places a stop-loss order at $15 to ensure that losses will not exceed $500. Also, assume that this trader believes that the price of XYZ will reach $30 in the next few months. In this case, the trader is willing to risk $5 per share to make an expected return of $10 per share after closing the position. Since the trader stands to make double the amount that they have risked, they would be said to have a 1:2 risk/reward ratio on that particular trade. Derivatives contracts such as put contracts, which give their owners the right to sell the underlying asset at a specified price, can be used to similar effect.
If an investor prefers to seek a 1:5 risk/reward ratio for a specified investment (five units of expected return for each additional unit of risk), then they can modify the stop-loss order and thus adjust the risk/reward ratio. But it is important to understand that by doing so the investors has changed the probability of success in their trade.
In the trading example noted above, suppose an investor set a stop-loss order at $18, instead of $15, and they continued to target a $30 profit-taking exit. By doing so they would certainly reduce the size of the potential loss (assuming no change to the number of shares), but they will have increased the likelihood that the price action will trigger their stop loss order. That's because the stop order is proportionally much closer to the entry than the target price is. So although the investor may stand to make a proportionally larger gain (compared to the potential loss), they have a lower probability of receiving this outcome.