1. What is Reward To Risk Ratio?

The Reward To Risk Ratio is a trading metric that compares the potential profit of a trade to its potential loss. It helps traders assess whether a trade is worth taking based on the potential return relative to the risk involved.

2. How Does the Calculator Work?

The calculator uses the simple formula:

Where:

• Potential Profit — The expected profit from the trade (in currency)
• Potential Loss — The maximum acceptable loss from the trade (in currency)

Explanation: A ratio greater than 1 indicates the potential profit exceeds the potential loss, while a ratio less than 1 suggests the risk outweighs the potential reward.

3. Importance of Reward To Risk Ratio

Details: This ratio is crucial for risk management in trading. It helps traders maintain discipline, avoid emotional decisions, and build strategies with positive expected value over multiple trades.

4. Using the Calculator

Tips: Enter your expected profit and maximum acceptable loss in your preferred currency. Both values must be positive numbers, with loss greater than zero.

5. Frequently Asked Questions (FAQ)

Q1: What is a good reward to risk ratio?
A: Most professional traders recommend a minimum ratio of 2:1 or 3:1, meaning the potential profit should be at least 2-3 times the potential loss.

Q2: Can the ratio be less than 1?
A: Yes, but trades with ratios less than 1 are generally avoided as they represent unfavorable risk-reward scenarios where losses may exceed gains.

Q3: How does this ratio affect trading success?
A: Consistently maintaining favorable ratios helps traders be profitable even with win rates below 50%, as winning trades compensate for multiple smaller losses.

Q4: Should I always use the same ratio?
A: The ideal ratio may vary based on your trading strategy, market conditions, and risk tolerance. It's important to backtest different ratios for your specific approach.

Q5: How do I determine potential profit and loss?
A: These are typically based on technical analysis (support/resistance levels) or fundamental price targets and stop-loss levels you set for each trade.