📊 What is Risk-to-Reward Ratio?
It’s the ratio between:
How much you're willing to lose (risk)
How much you're aiming to gain (reward)
on a single trade.
Example:
You risk $100 to potentially make $300
→ R:R = 1:3
🎯 Why is it Important?
Because even with a lower win rate, good R:R management can make you consistently profitable.
Example:
Win rate: 40%
Risk-to-Reward: 1:3
Out of 10 trades:
4 wins × $300 = $1,200
6 losses × $100 = -$600
Net profit = +$600
👉 See? You win less than half, but still profit because your gains outsize your losses.
🛠️ How to Use It in Trading
Step What to Do
Identify Entry Based on your strategy (support bounce, breakout, etc.)
Set Stop Loss Define a clear invalidation point (how much you're willing to lose)
Set Target Choose realistic price levels for taking profit
Calculate R:R (Potential Profit) ÷ (Potential Loss)
Only take trades If R:R meets or exceeds your rule (like 1:2 or 1:3)
📈 Example: ETH Trade Setup
Entry: $1,600
Stop Loss: $1,550 (risk: $50)
Take Profit: $1,700 (reward: $100)
R:R = $100 / $50 = 2:1
✔️ Good trade — take it.
🔒 Pro Tips:
Aim for minimum 1:2 R:R
Be disciplined — never move your stop loss further out of fear
Only increase size after proven consistency
Don't chase trades if you missed the ideal setup
📊 Risk Management Rule of Thumb:
Risk 1–2% of your account per trade
Example:
If your account is $5,000, risk $50–100 max per trade