ENTRY  N° 63  /  80
Glossary

Risk/reward ratio

Part of the theme Expectancy and edge.

Definition

The risk/reward ratio compares the distance to your profit target against the distance to your stop, for example risking 1 to make 3.

It sets how large winners are relative to losers. Win rate and risk/reward trade off against each other, and only expectancy combines them into a verdict on whether a system is profitable.

Formula / example: Risk $200 to make $600 is a 3:1 reward-to-risk

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