#RiskRewardRatio

What is the Risk Reward Ratio and why should every trader care about it?

In the trading world, many people focus on how many trades they won and how many they lost, but few pay attention to the Risk Reward Ratio, which is actually one of the most important secrets to long-term success.

A simple definition:

The Risk Reward Ratio tells you how much money you could lose for every unit of profit you expect. In other words, if you lose, how much will you lose? And if you win, how much will you win?

A practical example:

If you enter a trade aiming for a profit of $100, and you set a stop loss at $50, then the Risk Reward Ratio would be:

1:2 (meaning you risk 1 to gain 2).

Why is this ratio important?

• Even if you win only 4 trades out of 10 (40%), and the ratio is 1:2, you will still be profitable in the end!

• The ratio protects you from emotional “impulsiveness” and helps you make logical decisions.

• It is an essential part of capital management and reducing losses.

Is there an ideal ratio?

• There is no one-size-fits-all ratio.

• Some traders prefer 1:2, while others prefer 1:3 or more.

• The important thing is to stick to a clear trading plan and not enter any trade without calculating this ratio.

⸻

In summary:

If you want to succeed as a trader, it is not enough to just look for good opportunities; you must ensure that every trade is worth the risk. And your means to do that is: the Risk Reward Ratio.