#RiskRewardRatio The hashtag #RiskRewardRatio is all about evaluating the potential profit of a trade or investment compared to its potential loss. It’s a key concept in trading and investing used to assess whether a trade is worth taking.
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What Is Risk-Reward Ratio?
The Risk-Reward Ratio (RRR) compares the amount you could lose (risk) to the amount you could gain (reward).
Formula:
Risk-Reward Ratio = Potential Loss / Potential Gain
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Example:
You buy a stock at $100
Your stop-loss is at $95 (risk = $5)
Your profit target is $115 (reward = $15)
Risk-Reward Ratio = $5 / $15 = 1:3
This means you risk $1 to potentially make $3. That’s generally considered a good trade setup.
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Ideal RRR?
Most traders aim for at least 1:2 or 1:3
The higher the RRR, the fewer winning trades you need to be profitable
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Why It Matters:
Helps filter out bad trades
Keeps emotions in check
Aligns trades with your overall risk management plan
Want a calculator or template to quickly assess risk-reward on your trades?