Recently, many people have asked me why I emphasize the risk-reward ratio so much, honestly, this thing can really determine your trading success or failure.

First, let's talk about what the risk-reward ratio is. The literal meaning is the ratio of your profit to your loss. It sounds simple, but many people don't take it seriously. I'll give you an example to calculate: suppose you have $100 in your wallet, and you only risk 10% per trade, which is $10.

The key here is the relationship between win rate and the risk-reward ratio. Many people think that a higher win rate is better, but I tell you, that's a trap. Your win rate can't be 10%, nor can it be 100%. If it were 100%, either you're trading too infrequently, or you're fooling yourself. Doing only one trade a year and winning it all? Sure, but what's the point?

Let me show you some real data comparison. Suppose your win rate is only 10%, and you make 10 trades, with each trade having a 1:1 profit-to-loss ratio. The result is one win and nine losses, ending up losing $80. But if you can raise your risk-reward ratio to 1:5? Then, you only need a 20% win rate to make steady profits without losing money. 20%! That's even lower than flipping a coin.

I have a student whose win rate is 71%, which sounds pretty good, right? But his risk-reward ratio is only 1:1.5, so he still ends up breaking even—neither winning nor losing. This is the problem many people face. They either trade too often, dozens or even hundreds of trades a day, itching to enter at signals; or they trade too little, only four trades a week, and then think their win rate is especially high.

The key is this: before entering a trade, you need to think clearly. What's your maximum acceptable loss? Then, see if the market can give you a chance to make 15 or 20. If yes, then enter; if not, wait. That’s disciplined trading.

Many people also have a misconception that winning several days in a row proves their true skill. Actually, that’s just because the sample size is too small. You should evaluate your win rate over a month—that’s the real reflection of yourself. If you find your win rate is particularly low, it might be because you're trading too frequently, or choosing poor entry points, or setting stops too tight.

I suggest you record every trade you make. Over the long term, you'll be able to see your true win rate and risk-reward ratio. Only then can you understand what kind of trades you're good at—whether you prefer range-bound, trending, or rebound trades. Once you find a trading style that suits you, your risk-reward ratio and win rate will naturally improve.

In short, the risk-reward ratio is the core factor that determines whether you can make steady money. You can have a low win rate, but as long as your risk-reward ratio is good, you can still win. That’s why I keep emphasizing its importance.