Risk to reward ratio

1. Risk-to-Reward Ratio (R:R)

This is a way to measure how much potential profit you aim to earn relative to the amount you're willing to lose on a trade.

For example, if:

Stop-Loss (Risk) = $10

Take-Profit (Reward) = $30

Then:

{R:R Ratio} = 10/30 = 1:3

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2. Reward-to-Risk Ratio (Inverse)

Some traders flip the formula and express it as

Using the same example:

{Reward-to-Risk} = 30/10= 3:1

Both expressions are correct — just make sure you're clear on which one you're using.

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Why It Matters:

A 1:2 risk-to-reward ratio means you risk $1 to potentially make $2.

Many traders aim for 1:2 or 1:3 to stay profitable even if they lose more trades than they win.