Risk/Reward Ratio -- Stock Tracker

Risk Management

Risk/Reward Ratio

The risk/reward ratio compares your potential loss (if wrong) to your potential gain (if right). Professional traders require at least 1:2 -- willing to risk $1 only if the reward potential is $2 or more.

Calculating risk/reward

Entry: $100. Stop loss: $95. Target: $115.
Risk = $5 (5%). Reward = $15 (15%). Ratio = 1:3.

With a 1:3 ratio and 40% win rate:
4 wins x $15 = $60. 6 losses x $5 = $30. Net: +$30.
Even losing more than you win, you're profitable.

How to find high R/R setups

Buy near support (stop just below) with resistance far above.
  Buy breakouts from tight bases -- stop is tight, target is the next level.
  Avoid 'chasing' stocks that have already moved 20% -- risk is high, reward low.
  Pre-earnings drift: defined risk (exit before earnings) with 2-3% upside.

✓ Quick Tips

If you can't see a 1:2 risk/reward setup, don't take the trade.
Your target should be set before you enter, not adjusted upward when price rises.
Partial profit-taking at 1:1 removes risk while letting remainder run.
Bad trades often have poor R/R -- low reward for high risk. Discipline fixes this.

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