Risk-Reward Ratio

Also called: R:R, Risk to reward, RR

// Definition

The risk-reward ratio compares how much you could lose on a trade with how much you could gain.

Explained simply

If your stop-loss is 300 points away and your target is 600 points away, the risk-reward is 1:2. You risk one unit to make two.

With a 1:2 ratio, you can be right less than half the time and still come out ahead, because each win is twice the size of each loss.

Tip

Check the risk-reward before entering. If the nearest target is closer than your stop, the trade is usually not worth taking.

For education only, not financial advice. Trading is risky and you can lose money.

Put each concept to work inside the TradingGain app, without risking real money.