StrategyBeginner#Risk Management#Core Concept
Risk-Reward Ratio
R
Definition
A metric comparing potential loss to potential gain on a trade. A 1:3 ratio means risking $1 to potentially gain $3.
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Concept Diagram
Key Takeaways
1
R:R compares potential loss to gain — 1:3 means risking $1 to make $3.
2
A 40% win rate with 1:3 R:R is profitable; 70% win rate with inverted 3:1 R:R is not.
3
Scalpers use tight R:R (1:1-1:2); swing traders use wider R:R (1:3-1:5).
4
R:R must be evaluated alongside win probability — unrealistic targets are meaningless.
Practical Example
You enter BTC at $100,000 with stop-loss at $97,000 (-3%) and take-profit at $109,000 (+9%). R:R is 3:1. Over 100 trades at 35% win rate: 35 x $9,000 - 65 x $3,000 = $120,000 profit.
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