Evaluate if a trade setup is worth taking
The risk/reward ratio compares potential gain to potential loss. Many traders use this metric to evaluate trade setups.
R/R Ratio: 2:1 or higher
Risking $1 to potentially make $2 or more. Traders often seek these setups as they can be profitable even with a 50% win rate.
R/R Ratio: Less than 1:1
Risking more than potential gain. This typically requires a very high win rate to be profitable over time.
Educational Note: Many trading strategies aim for a minimum 2:1 risk/reward ratio. Individual approaches may vary based on trading style and market conditions.
Scenario: You want to buy a stock at $100. You'll set your stop loss at $97 and target $106.
This demonstrates a 2:1 risk/reward setup. Many traders consider this favorable, as it can be profitable even with a 40% win rate. For educational purposes only.
MarketDly provides signals with optimal risk/reward ratios already calculated.