#RiskRewardRatio Risk Reward Ratio: The Key to Effective Trading

What is Risk Reward Ratio (R:R)?

Risk Reward Ratio is the comparison between potential losses and gains in a trading transaction. For example, if you are willing to bear a risk of Rp100,000 for a profit target of Rp200,000, then your R:R is 1:2.

Why is R:R Important?

- Allows for profit even if the win rate is below 50%

- Example: With an R:R of 1:2, a win rate of 35% can already be profitable

- Without a good R:R, even a win rate of 70% can still result in losses

- Helps to control trading emotions

How to Use R:R Correctly

1. Determine Stop Loss (SL) and Take Profit (TP) before entry

2. Use a minimum R:R of 1:1.5, ideally 1:2 or 1:3

3. Do not change TP/SL once the position is running

4. Calculate the correct position based on the size of SL

Example Calculation

In 10 transactions with R:R 1:2 (SL 1%, TP 2%):

- 6 losses = -6%

- 4 wins = +8%

- Total profit = +2% (even with only a 40% win rate)

Common Mistakes

- Chasing big profits without accurate SL calculations

- TP too small (e.g., R:R 1:0.5 needs a win rate of 70%+)

- Changing SL/TP during emotional moments

Conclusion

"Trading success is determined by risk management, not just win rate."

- Use a minimum R:R of 1:2

- Discipline in execution

- Focus on long-term consistency