Risk Reward Ratio
Risk reward ratio compares the amount a trader plans to risk with the potential reward if a trade reaches its intended target. For example, risking $100 for a potential $300 gain represents a risk reward relationship of 1:3.
Why it matters to you
A trader does not need to win every trade to be profitable if average winning trades are sufficiently large relative to average losses. But a favorable theoretical risk reward ratio does not automatically make a trade good. The probability of reaching the target matters too.
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