RiskPicksWhat is Risk/Reward Ratio?
Risk/reward ratio compares how much you stand to lose versus how much you stand to gain on a trade. It's calculated as:
Risk/Reward = (Entry - Stop Loss) / (Take Profit - Entry)
Why it matters
A 1:3 risk/reward ratio means you only need to win 25% of your trades to break even. Even traders with a 40% win rate can be highly profitable with good risk/reward ratios.
Guidelines
- Minimum 1:2: most professional traders won't take trades below this
- Ideal 1:3 or better: gives you room to be wrong more often than right
- Never 1:1 or worse: you need an extremely high win rate to profit
RiskPicks calculates your risk/reward ratio automatically when you set your stop loss and take profit targets.