Risk-Reward Ratio Definition

The risk-reward ratio compares the potential loss of a trade to its potential profit.

What is Risk-Reward Ratio?

A favorable risk-reward ratio means the potential reward outweighs the potential risk on a trade.

Traders often use this ratio alongside win-rate expectations to assess whether a strategy is viable over time.

Risking $100 to potentially gain $300 on a trade represents a risk-reward ratio of 1:3.

A rally is a sustained period of rising prices in an asset or market, often following a decline or period of stability.

Range trading is a strategy that involves buying near support and selling near resistance within a defined price range.

Rate of return is the gain or loss on an investment over a period of time, expressed as a percentage of the initial investment.