Have you ever wondered why professional traders keep getting richer while ordinary people keep losing money in trading? The secret lies in this—RR ratio.

This is the Risk-Reward Ratio, simply called the RR ratio, which is a measure that indicates "how many baht we can get back for every 1 baht we risk losing." If it's high, it shows a good deal; if it's low, it indicates excessive risk.

The formula to calculate the RR ratio is very simple: (Target Price - Entry Price) divided by (Entry Price - Stop Loss Price). Just try an example with BTS stock at 7.45 baht, with a target of 10.50 baht and a stop loss at 4.50 baht. The result is RR = 1.03. This means that if the trade succeeds, we will make more profit than the risk by 1.03 times.

Now, let's see why the RR ratio is so important. Suppose there are two investment options: the first option aims for a 20% profit but risks a 50% loss; the second option aims for a 10% profit but risks only a 5% loss. Most people would choose the first. But if you calculate the RR ratio, you'll see that the second option is better (RR = 2 versus 0.4). This is the difference between ordinary traders and professionals.

The best RR ratio is 2 or higher because it shows that the return significantly exceeds the risk. But this is not a strict rule, because you also need to consider the Win Rate. For example, if the RR ratio is 3:1 but the Win Rate is only 25%, you can still make a profit. Conversely, if the RR ratio is only 0.5:1, you need a Win Rate of at least 66.67% to be profitable.

What you must remember is that the RR ratio is not just a number you calculate and forget. It must be applied to actual risk management by setting Stop Loss levels based on the calculation, so losses do not exceed acceptable levels. Also, only invest when the RR ratio is favorable, combined with fundamental analysis and market conditions.

In simple terms, before investing or trading anything, always calculate the RR ratio first. If the RR ratio isn't good enough, skip and look for other opportunities. This discipline is what allows professional investors to survive and profit in the long run.