How I Use Risk-Reward Ratio to Trade Smarter (And You Should Too)
The risk-reward ratio (R:R) is my trading compass—it keeps me disciplined and profitable. Here’s how I apply it:
One of my Strategy:
1️⃣ Minimum 1:3 R:R: I never enter a trade unless the potential reward is *at least* 3x my risk. For example, if my stop-loss is 1% of my account, my take-profit must be 3% or higher.
2️⃣ ATR for Stops: I use the *Average True Range (ATR)* to set dynamic stop-loss levels. If the ATR is 50 pips, I place my stop 1.5x ATR (75 pips) away to avoid noise.
3️⃣ Fibonacci for Targets: I combine R:R with Fibonacci extensions (e.g., 1.618 or 2.0 levels) to identify high-probability profit zones.
Why It Works:
- Even with a 40% win rate, I stay profitable because my winners outweigh losers.
- It forces me to “only” trade high-conviction setups—no emotional gambling!