#RiskRewardRatio How is the risk-reward ratio calculated?

Basic formula:

R/R Ratio

Potential risk: The amount you are willing to lose if the trade goes wrong (for example, the distance between your entry point and your stop-loss).

Potential reward: The expected profit if the trade reaches the take-profit.

Example:

Entry point: $100

Stop-loss: $95 (risk of $5)

Take-profit: $115 (reward of $15)

So:

R/R=5/15=1:3

This means that for every $1 you risk, you could gain $3.

How is it used in practice?

Select trades with good R/R: Many traders look for a ratio of at least 1:2 or 1:3, allowing you to remain profitable even if you only win a smaller percentage of your trades.

Filter low-quality setups: If a trade has an R/R ratio of 1:1 or worse, it may not be worth it unless you have a proven high win rate.

Risk management: Combined with the percentage of capital you are willing to risk per trade (for example, 1-2%), you can calculate how much to invest in each trade.

Final tip:

Do not focus solely on a good R/R ratio. Also consider the probability of success of each trade. An R/R of 1:5 is useless if the odds of achieving it are very low.

be aware ✍️