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Understanding Risk/Reward Ratios

📊 What is Risk/Reward?

The risk/reward ratio compares your potential profit to your potential loss on a trade. A 1:2 ratio means you're risking $1 to potentially make $2. This helps ensure profitable trading over time.

🎯 Ideal R:R Ratios

Most successful traders aim for at least 1:2 risk/reward. This means even with a 40% win rate, you can be profitable. Higher ratios like 1:3 or 1:4 allow for even lower win rates while staying profitable.

💡 Using R:R in Trading

Before entering any trade, calculate your R:R ratio. If it's below 1:1.5, consider skipping the trade. Always set your stop loss and target before entering to maintain discipline.

🧮 From one trade to a process

A ratio describes one trade; expectancy describes the process. The R-multiple and expectancy calculator combines your win rate with your average win and loss to show whether the process makes money, and what win rate you would need to break even.