How I Calculate and Use the Risk-Reward Ratio in My Trades
Why every smart trade starts with risk before reward
#CryptoTrading #RiskReward #StaySAFU
What is the Risk-Reward Ratio (RRR)?
The Risk-Reward Ratio (RRR) is a metric used to evaluate the potential return of a trade relative to the amount of capital at risk.
Formula:
Risk-Reward Ratio = (Target Price - Entry Price) / (Entry Price - Stop Loss)
For example:
• Entry: $100
• Stop-loss: $95 (risk: $5)
• Take-profit: $115 (reward: $15)
RRR = 15 / 5 = 3:1
That means: for every $1 I risk, I could potentially make $3.
How I Use It in My Trading Strategy
I never enter a trade without first calculating RRR. It’s my pre-trade filter—if the RRR isn’t at least 2:1, I skip it.
Quantitative Tools & Indicators I Use to Assess RRR:
1. TradingView: Long/Short Position Tool
• Set entry, stop-loss, and target directly on the chart
• It auto-calculates the RRR visually
• Helps me spot setups quickly and adjust targets if needed
2. Support & Resistance Levels
• I use price structure to find logical take-profits and stop-losses
• This ensures I’m not placing random targets—each level has meaning
3. Fibonacci Extensions & Retracements
• Great for identifying realistic targets beyond the swing high/low
• Combines well with RRR to justify reward zones
4. ATR (Average True Range)
• Sets stop-losses based on volatility instead of emotion
• Keeps me from placing stops too tight during high volatility
5. Volume Profile & Order Blocks
• Confirms strong areas of support/resistance
• Improves the precision of my RRR-based setups
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How RRR Changed My Trading Performance
Before I used RRR:
• I took trades based on FOMO
• Took small profits and big losses
• Didn’t have consistency
After implementing RRR:
• I only take high-probability trades
• I lose less and win bigger
• My win rate doesn’t need to be high to stay profitable
Key Insight:
Even with a 40% win rate, if I maintain a 3:1 RRR, I stay profitable.
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Realistic Scenario:
• Trade 1: -$100
• Trade 2: -$100
• Trade 3: +$300
• Trade 4: +$300
• Trade 5: -$100
Net Result = +$300, even though I only won 2 out of 5 trades (40% win rate). That’s the power of RRR.
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Final Tips for Using RRR Effectively:
• Always define your stop-loss and take-profit before entering
• Don’t adjust stop-loss emotionally—stick to your plan
• Combine RRR with technical confirmation (trendlines, RSI, MACD, etc.)
• Journal every trade to measure your real-world average RRR over time
Conclusion:
The Risk-Reward Ratio isn’t just a number—it’s a discipline tool.
It prevents revenge trading, emotional exits, and bad entries.
In my journey, using RRR helped me shift from random trading to systematic, data-backed decisions.
If you’re not using it yet—start now.
Your account will thank you.
#StaySAFU #RiskFirstRewardSecond