How to use Risk Reward Ratio in Trading

[TheodoreThring]

@carldupoin

using a 2:1 risk‑reward ratio means you are prepared to risk $1 in order to target a $2 profit on each trade

You actually have that the wrong way round.

If you have a 2:1 risk-reward it means you’re risking 2 units to win 1.

If you’re risking 1 unit to try to win 2, as you describe, that’s (naturally enough) called a 1:2 risk-reward, because it’s 1-risk and 2-reward.

By the way, this widespread point of confusion’s been discussed here many times! These threads will help anyone interested.

Risk Reward Ratio

There’s always quite a bit of confusion,in forum conversations, between risk-to-reward and reward-to-risk. The “industry standard term”, for what it’s worth (if anything) is “risk-to-reward” so having the reward twice the size of the risk is normally stated as “1:2”. My own belief is that almost no retail CFD traders are steadily profitable with net reward greater than net risk. In forums, of course, everyone’s profitable, and they’re all trading with something like 1:2 (reward twice the size …

1 to 1 risk to reward ratio

there’s either a minor typo or a major arithmetical mistake in that sentence if you have a risk-to-reward ratio of 1:2, any win-rate above 33.3% is profitable (ignoring commissions/spread) if it had the best net expectancy, yes, of course but it takes a lot of methodical observation, testing and calculation to know that with confidence you’ll often see “forum advice” never to trade without a 1:2 ratio or better this is truly horrible advice: it means that you’re necessarily going to have …

Beginner question - leverage and trade example

OMG. Among successful daytraders a typical reward-to-risk is around 0.5 to 0.8, or something like that. It’s almost always LESS than 1.0. It’s among people posting in retail trading forums that one often, sadly, finds the “advice” to trade with a take-profit target of 2-to-3 times (or more!!) the size of the stop loss. It’s shockingly bad advice that actively prevents huge numbers of people from ever becoming profitable. I’ve noticed here that people who point out this reality sometimes get …

Trading strategy for better risk reward

thanks for starting this thread, Carl the wording you chose for the title also raises the bigger question of what is a “better” risk to reward ratio we can all see that you think of it as bigger reward per unit of risk, rather than the opposite you mean “higher reward”, really, when you say “better” the opposite perspective is also an arguable one, though two points are worth thinking about, in this context if you look at successful professional traders, and institutional traders, they t…

Risk reward Ratio for scalping?

this is just nonsense sorry to appear so contradictory, but some of the people expressing their beliefs on this subject simply have no idea what they’re talking about at all!!

Zone recovery strategy

If you can “only win 40% of the time” then all the people sitting on trading floors earning 7 figure salaries and bonuses (even if they’re almost all virtual trading-floors, these days) must be doing something terribly wrong, because they seem to believe the exact opposite!! This myth just won’t die out. At least, in forums full of struggling retail traders it won’t die out. And it gets continually reinforced on Youtube, in PDF’s and on websites where people are selli…