How large the planned gain is relative to the planned loss
The risk-reward ratio compares, before a trade begins, the distance to the point where you would cut the loss with the distance to where you would take profit. It is the profit distance divided by the loss distance. A higher ratio lets results balance out even with fewer winning trades, but a more distant target is also reached less often. The number only means something alongside the share of trades that win.
Buying at $1,000 with a cut at $900 and a target of $1,300 risks $100 to make $300, a ratio of 3.
For learning, not investment advice. Decisions are your own.
StockFit · TrueNorthLabs Inc.