Risk/Reward Ratio

The risk/reward ratio (R/R) marks a key trading concept. You get it by dividing expected profit by potential loss in a trade. People say "risk-to-reward ratio" a lot, but it's really about the relationship between what you might gain versus what you could lose.

Trading looks different now in 2025. Good R/R ratios seem to fall between 1:2 and 1:5. Stocks, forex, crypto - all these markets follow similar patterns. Risk one unit, aim for two to five back. Simple math.

Traders love quick decisions. They jump on short-term signals. Can't blame them. Every trade should have a stop loss order though. It's your safety net, telling exactly how much you'll risk on that asset.

Setting random stop-loss points? Bad idea. Forgetting about fees in your calculations? Even worse. And those profit targets need to stay realistic. Kind of surprising how many people miss these basics.

Position sizing matters too. It's not entirely clear to everyone, but you can't separate it from R/R strategy. Never risk too much of your capital on one trade.

Smart traders calculate their ratios carefully. They pick their battles. Structure trades with discipline. The end goal? Make money while managing risk.