#RiskRewardRatio

Risk-to-Reward Ratio – The Most Underrated Tool in Trading

Lesson: Why Every Trade Needs a Risk/Reward Plan

Most traders focus on profits.

But smart traders?

They focus on the ratio.

The Risk-to-Reward Ratio (RRR) tells you if a trade is worth the risk — before you enter it.

How It Works:

Let’s say:

You're risking $100

Your target profit is $300

That’s a 1:3 risk-reward ratio.

It means:

You can lose 3 times and win once — and still break even!

The Golden Rules of RRR:

1. Aim for at least 1:2 or higher

Never enter a trade where you risk more than you expect to gain.

2. Set TP (Take Profit) and SL (Stop Loss) based on levels, not emotions.

3. Stick to the ratio

Don’t exit early unless the market structure changes. Trust your setup.

Example Setup:

Entry: $100

Stop Loss: $95 (Risk: $5)

Take Profit: $115 (Reward: $15)

Risk/Reward = 1:3 — that’s a solid trade.

Pro Tip:

Even if you win only 40% of your trades, a 1:3 ratio can still make you consistently profitable.

My Take:

Understanding risk/reward completely changed how I trade. Now I don’t just look for "good entries" — I look for great ratios. That’s the key to surviving and thriving long term.

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