How can you use risk-reward ratio to evaluate orders?

Le ratio risque/récompense correspond à l'inverse de la différence entre le prix TP et le prix SL proportionnel au prix d'entrée. Il permet de mesurer la relation entre le risque de perte et le gain potentiel d'une position.

Whenever you take a trade you must be certain how much are you willing to risk and how much are you expecting from that trade. One must always, Always know how much is he willing to lose for that trade. Usually people go for 1:2 risk reward ratio, that is they are willing to lose 100 to make 200. This will eventually help you with your risk management. Even if you lose 7/10 times. You end up being only -1% on your portfolio.

Trading is a complex game where every move should be tailored to your risk tolerance, your ability to handle losses, and the size of your portfolio. Unlike strict rules, trading is about adaptability and going beyond predefined norms. In an ideal world, we would apply the risk-reward concept to all aspects of life. However, it's crucial to recognize that increasing your risk often means needing a higher reward. An essential reminder is that recovering from a 50% loss actually requires a 100% gain, and not every asset has the liquidity or volume to achieve that feat. So, it's vital to balance ambition with realism in trading and in life.

The risk-reward ratio is a fundamental concept in trading that measures the potential profit of a trade against its potential loss. It represents the relationship between the amount a trader is willing to risk (the risk) compared to the potential profit they aim to gain (the reward) on a particular trade. For example, a risk-reward ratio of 1:2 means that for every dollar at risk, the trader aims to make two dollars in profit. This ratio helps traders assess the potential profitability of a trade relative to the risk undertaken.

Risk-reward ratio is a tradeoff between the risk (downside) and reward (upside) potential. There is no optimal ratio that can be recommended as it depends upon the risk aversity of an individual investor. Individuals who like to take risks, may keep a ratio of 2:1 (suggesting that the investment has twice the chance to give returns than incurring a loss); while an investor who does not take risk may use 4:1 ratio to reduce the chances of loss. Higher risk has high return potential, while lower risk reduces the potential of returns.

The Risk-to-Reward ratio in finance is a measure of potential profit versus potential loss in a trade. To calculate it, divide the expected gain by the expected loss. For example, if you anticipate a $300 profit with a $100 risk, the ratio is 3:1 – indicating potential rewards are three times the potential risks. This ratio helps investors assess the balance between potential returns and risks before making investment decisions

The risk-reward ratio is calculated by dividing the potential profit of a trade by its potential loss. To determine the ratio, you need to identify the entry point, stop-loss level (where you'd exit the trade to limit losses), and the take-profit level (where you'd exit the trade to secure profits). Risk-Reward Ratio = (Take-Profit Price - Entry Price) / (Entry Price - Stop-Loss Price) For instance, if you enter a trade at $50, set a stop-loss at $45, and a take-profit at $60, the risk-reward ratio would be calculated as follows: Risk-Reward Ratio = ($60 - $50) / ($50 - $45) = $10 / $5 = 2:1

This is a calculated metric to determine a potential reward and permissive loss in a trade. Your maximum risk tolerance for a position versus your reward in profit from thesame position. Risk reward ratio (RRR) is connoted with RR=1:3 for example, it means the reward would be x3 of the expected loss. If loss is $5 then reward is $5x3 meaning $15.

Mastering the risk-reward dance requires mastery of three steps: entry price, target price, and stop-loss price. Your entry price is the first move, the target price is where you hit the high note (profit), and the stop-loss price is your quick exit strategy to avoid a financial misstep. Cracking the code with this formula: Risk-reward ratio = (Target price - Entry price) / (Entry price - Stop-loss price). In the bullish rhythm, subtract entry from target, divide by the entry-stop-loss difference; for the bearish beat, just flip the subtraction sequence.

You can calculate risk reward ratio by using your profit by your risk for that trade. Eg: If you buy stock at $10 if your stop loss should be $8 but your target will be $14 so your risk reward will be 1:2

Le R.R. sert juste à se fixer un seuil en dessous duquel on considère une position comme trop risquée. Certains ne passent pas d'ordre dont le R.R. est inférieure à 2; 3; ou encore à 3,5. Ce seuil dépend de la stratégie de chaque individu et doit être mûrement réfléchi.

The market structure, price pattern will determine this if it has to be done professionally. There may be a trade opportunity at a price level which is not offering a good risk-reward ratio, it means it is not a good trade to take. When there is a structure or price pattern that suggest a more reasonable risk-reward ratio setup, it is better to take instead. Meaning you can not take all trades takeable in the market. They must align with risk-reward before taking orders.

1. Determine Risk Tolerance: - Decide the maximum amount you're willing to risk on a trade. 2. Set Levels: - Establish stop-loss and take-profit levels. 3. Calculate Ratio: - Find the risk-to-reward ratio (e.g., 1:2) by comparing potential loss to potential profit. 4. Evaluate and Adjust: - Ensure the ratio aligns with your strategy. Adjust position size accordingly. 5. Consider Market Conditions: - Account for volatility when setting ratios 6. Monitor and Adapt: - Keep an eye on trades, adjusting if needed based on market movements. 7. Maintain a Trading Journal: - Document trades, including ratios, for ongoing analysis and improvement.

Before executing any order, you must mark 3 points in advance 1. Entry price, 2. Target price, 3. Stoploss price. Basis on these points, calculate risk reward ratio. Then evaluate this ratio with your setup accuracy, some setup with higher accuracy can be used with lower RR also, but if your setup accuracy is lower then you have to maintain high RR against that. Risk Reward ratio is balanced with Accuracy can help you maximizing your profit.

When evaluating orders in sales using the risk-reward ratio, consider the following steps: . **Determine Potential Profit:** - Identify the potential profit associated with the order. This could be the revenue generated from the sale or any additional benefits. . **Set a Threshold:** - Establish a minimum acceptable risk-reward ratio based on your risk tolerance and business objectives **Make Informed Decisions:** - Use the risk-reward ratio as one of several criteria to make informed decisions about which orders to accept or prioritize. By incorporating the risk-reward ratio into your evaluation process, you can better assess the potential profitability and associated risks of different sales orders.

The most common is 1:2 because that is easily explained and achievable for a new technical analyst in the industry. For some swing traders, they can target 1:5 because they can wait and understand the market flow better than a newbie. 1:10, 1:15 are all achievable by Pro TAs in the industry, I had 1:15 few times in year 2023, it takes more time to hit and doesn't come often but it is doable in the market.

The most common risk reward ratio is 1:2 because it will easily achievable for the new technical analysis in the Industry. The risk reward will go till 1:5 and above also for swings traders and for those who uses SMC Concept (SMART MONEY CONCEPT) they can achieved 1:10,1:15 also some time if market are in there fever.

Cost commonly used RR is 1:2 and 1:3 but in scalping i personally use 1:1 mostly, because my accuracy is 80% it is a profitable setup for me. In swing trading 1:5 is used commonly.

Few traders or even retailers who want to make quick money generally go for higher risk with lower reward. But in this case they tend to loose more. Hence, in stock market above 90% loose money. However, investors or positional traders on other hand, tend to go with lower risk with high reward. Hence the chances of gaining is more.

Common risk-reward ratios 1. **1:1 Ratio:** - Equal potential profit and potential loss. This suggests a balanced risk-reward scenario. 2. **2:1 Ratio:** - For every $1 of potential loss, there is $2 of potential profit. This is often considered a minimum threshold for a favorable risk-reward ratio. 3. **3:1 Ratio:** - For every $1 of potential loss, there is $3 of potential profit. This is generally considered a more conservative and favorable ratio. 4. **5:1 Ratio or Higher:** - For higher risk tolerance, some businesses aim for ratios of 5:1 or even higher. This indicates a willingness to take on more risk for potentially greater rewards. 5. **Dynamic Ratios:**

To improving Risk and Reward ratio you need to use Stop-loss strictly and take profit strictly. after that you can use trailing Stop-loss for the improvement of risk reward ratio it will help to get more rewards then risk

Here are concise points to improve your risk-reward ratio in sales: Thoroughly qualify leads. Understand customer needs. Improve negotiation skills. Diversify client portfolio. Stay informed about market trends. Manage costs efficiently. Build strong client relationships. Use data analytics for insights. Set realistic sales targets. Regularly review and adjust strategies

Risk Reward ratio is just a number and it cannot help you becoming a profitable trader if you are not following your plan with proper SL and Profit bookings. Best way to use RR is you should maintain a trading journal to find where you need to improve your psychology.

Personally, I am someone who tends to avoid risk, so I make sure that technicals are largely in my favor before buying a stock. I use weekly charts to analyze stocks, and some indicators I use are: Estimated Moving Average(EMA): I use an EMA of 40, when the price cuts the line in an upward trend with high volumes for and stays in green for 3 weeks: I highly consider to buy. Daily Moving Average (DMA): I use DMA 50 and DMA 200, when 50 line cuts 200 and stays above for 3 weeks: I strongly consider to buy. Stochastic: I make sure that I do not buy stocks whose stochastic is above 60 as I fear it may face a drop in price.

Understand the market paradigm very well. Pay close attention to price delivery scheme. Identify and refine liquidity areas in demand and supply zones. Trade with proper risk management.

If you are an early investor, I highly recommend you to be extra careful regarding your investment calls. Buy assets which are less exposed to risk, investors at an early stage become over-enthusiastic, and may easily get way too hopeful. Facing losses early discourages an individual, and he/she may not every invest again; so try and avoid that, gain some experience, then start taking risks. You may look at The Dow Theory and Elliot Wave, which may help you identify chart patterns.

To improve your risk-to-reward ratio, consider setting realistic profit targets grounded in thorough analysis. Trading with the prevailing market trend increases the likelihood of success. Adapt your risk-to-reward ratios to account for market volatility, ensuring flexibility in your approach. Diversifying your portfolio across different assets can mitigate overall risk exposure. Additionally, regularly review and analyze your trades, learning from both successes and losses to refine your trading strategy over time.

Risk Reward Ratio is a good guideline to follow. No doubt about that. But have you considered accuracy as a metric to measure and evaluate trades? Instead of targeting a "specific" risk to reward, % profitable trades compared to the overall amount of trades is also a way to consider "success". Targeting an arbitrary yet reasonable percentage profit is also a possible metric to follow. If historical volatility is on average a 10% over a specified period, would not a 5% or 7.5% move be a reasonable assessment for a breakout move? This basically takes into account the market for a given asset...and since "history does repeat itself", would this not be a reasonable assessment of a quantified move when volatility enters an asset price? FFT.

How much a trader or investor is risking on a trade depends on these factors. Capital and Trading strategy. I have identified that aligning yourself with the banks and trading like them is a very efficient strategy. This strategy normally takes time unlike other trading strategies. One normally finds quality trades. When investors are comfortable with your strategy and are aware that these quality set ups don't come everyday, they risk reasonably to make the best returns. Risk has a lot yo do with trading strategy.

Placing a Risk:Reward Ratio tool on an asset chart assumes some level of technical analysis is done, and the trader believes it is a probable trade worth taking some risk for. Precision in trade entry and stop loss is highly technical, because you want to enter the trade with the minimum amount of draw down (risk), and to stay in the trade long enough to take profit. Even then, volatility can stop you out. IMO, develop the discipline to be comfortable with getting stopped out. Take the hit re-assess, and re-enter if it’s a high probability trade. Everybody gets stopped out. It’s the cost of doing business. The fear of getting stopped out can cause the behaviour to widen the stop-loss, which can cause greater losses and liquidation.