What do you think about before deciding to invest? I see many people focusing only on the potential returns, but forget to consider how much risk they are taking. This is where RR comes from, which actually is a tool that helps us understand whether that investment is truly worthwhile or not.

RR is the ratio between risk and reward. Simply put, "if we risk losing 1 baht, how many baht will we get back?" The higher the RR, the better, because it means we are getting a worthwhile return relative to the risk. Conversely, a low RR indicates we are risking a lot but gaining only a little.

Let's compare with an example. Suppose there are two investment options: the first expects a 20% profit but could lose up to 50%, and the second expects only 10% but with a risk of just 5%. Which one seems better? Not the first, right? But when calculating RR, you'll find that the second has an RR of 2, while the first only 0.4. This is why professional traders look at RR before making decisions.

Calculating RR is very simple. Use this formula: RR = (Target Price – Entry Price) / (Entry Price – Stop Loss Price). Let's calculate with BTS stock as an example. Current price is 7.45 baht, expected to rise to 10.50 baht, with a Stop Loss set at 4.50 baht. So, RR = (10.50 – 7.45) / (7.45 – 4.50) = 3.05 / 2.95 ≈ 1.03. This indicates that this investment is worthwhile.

What is the best RR value? I recommend looking for RR of 2 or higher. If it's lower, the risk is too high compared to the reward. But remember, RR is not the only number to consider. You should also evaluate other factors such as the fundamentals of the business, market volatility, and most importantly, your system's Win Rate.

Speaking of Win Rate, it is inversely related to RR. If RR is high, Win Rate tends to be low; if RR is low, Win Rate should be high. For example, with an RR of 3:1 and a Win Rate of 25%, trading 100 times would result in 25 wins, 75 losses, with profits of 75 and losses of 75, ending in break-even. Therefore, you need at least a 25% Win Rate to be profitable.

For professional RR analysis, if RR = 1:1, it means the reward equals the risk. This is not recommended if you want to make a profit. If RR > 1, such as 1.50, it suits moderate risk levels. If RR > 2, it is suitable for those willing to accept high risk or with a high Win Rate.

But remember, a very high RR isn't always good because it might indicate high risk. Low RR isn't necessarily bad either. If you have skills and a precise system with a high Win Rate, you can still profit. Ultimately, RR is just one decision-making tool. It should be used together with other indicators such as fundamentals, volatility, and your own strategy to make well-informed decisions.