What is risk to reward ratio?

Hello Nick,

Risk/reward ratio determines a trader’s possible earnings by gauging an investment’s possible loss. For instance, a 1:4 risk/reward ratio represents a trader’s willingness to commit $1 and gain $4. Therefore, divide the returns by the risk to calculate the ratio.
The win rate is also worth mentioning. It’s a percentage representing the impressions achieved from scheduled purchases divided by the total bids. Suppose you bid 10 times and win twice, your 20% win rate is derived as follows: 2/10 X 100.
As such, more losses call for huge winners. Even so, don’t sacrifice your risk/reward for your win rate. Prioritizing gains over risk management could still throw you in the red. Though you can safeguard your capital with a stop loss, ensure it doesn’t block potential earnings.
That’s why your ratio should match your trading strategy. Practice reveals sensible risk/reward ratios for your trading method. Because the market is unpredictable, only place sums you don’t mind relinquishing. On top of that, manage your emotions and trust your technique.