#RiskRewardRatio
A hashtag revolves around one of the most important concepts in any type of investment or trading: the risk-reward ratio. It measures how much you can gain compared to how much you are willing to lose in a trade.
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What is Risk-Reward Ratio?
It is a ratio that compares:
Potential risk (how much you could lose)
with
Expected return (how much you could gain)
Basic formula:
Risk/Reward = (Entry - Stop) / (Target - Entry)
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Simple example
You buy a stock for R$100
Stop loss: R$95 (risk = R$5)
Target: R$115 (gain = R$15)
Risk/Reward = 5 / 15 = 1:3
That is, for every R$1 risked, you could gain R$3.
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Why is it important?
Helps to select more advantageous trades
Allows you to lose more times than you win and still come out profitable
(Ex: with a 1:3 ratio, hitting only 30% of the time is still profitable)
Provides clarity when creating trading or investment strategies
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Best practices with #RiskRewardRatio
Look for trades with a minimum of 1:2 or 1:3
Combine with #StopLossStrategies to limit losses
Use alongside technical/fundamental analysis to set realistic targets
Do not enter trades with a risk greater than the return (ex: 2:1)