Recently, someone asked me why I emphasize the risk-reward ratio so much, so I want to seriously discuss this topic with everyone.

Honestly, many new traders haven't fully understood how important the relationship between win rate and risk-reward ratio is. They think that as long as their win rate is high, they can make money, but in reality, they end up losing everything. Let me give you a simple example to illustrate.

Suppose you have $100 in your wallet, and you only invest $10 per trade. If your win rate is 50% and your risk-reward ratio is 1:1 (earning $10 on a win, losing $10 on a loss), after 10 trades, you break even, neither winning nor losing. But if you increase the risk-reward ratio to 1:1.5, with the same 50% win rate, you start to make a profit. That’s the power of the risk-reward ratio.

Let me push it further. If you can achieve a 1:2 risk-reward ratio, you only need a 40% win rate to make steady profits. A 1:2.5 ratio? A 30% win rate is enough. At the 1:5 level, you only need a 20% win rate to consistently make money without losing. It’s even simpler than flipping a coin.

But there’s a trap many people fall into. They say, “I’ve won 6 days in a row recently, 100% win rate.” That’s a typical case of insufficient sample size. Doing only 4 trades in a week will naturally give a high win rate, but that’s not your true skill level. Conversely, some people have very low win rates, doing dozens or even hundreds of trades a day, entering trades at signals, and impulsively placing orders. In such cases, their win rate is naturally very low.

So my advice is to think about your expected loss before entering a trade. For example, decide to lose $10, then see if the market can give you a chance to make $15 or $20. If yes, then this trade is worth taking. If not, then skip it. Keep a long-term record of every trade, and you’ll be able to see your true win rate and risk-reward ratio.

Many people keep losing money because their risk-reward ratio is too poor. They might make a little profit and then run, but when they lose, they hold on stubbornly, and in the end, a big loss wipes out everything. This is because they haven’t fully grasped the concept of risk-reward ratio.

If you’re good at trading within a range, focus on range-bound trades. If you’re good at trending, focus on trend trades. Once you understand your style and your real win rate and risk-reward ratio, you won’t be easily beaten by the market anymore. To put it simply, trading is a game of probabilities, and the risk-reward ratio determines whether you can survive long-term. Once you understand this, you’re already ahead of most people.