IntermediateLesson 3 of 4 · 7 min
Reward-to-Risk Thinking
Compare potential reward with defined risk before entering.
Illustrative chart · A 1:2 plan
Why the ratio matters
Reward-to-risk compares the distance to your target with the distance to your stop. It shapes how often a method must be right to break even over many trades.
It says nothing about the probability of reaching the target. A distant target on a chart with nearby resistance is not a real 1:3.
Key takeaways
- Measure R before entering.
- Targets should respect nearby levels.
- Ratio and probability are separate questions.
Charts are illustrative examples, not real market data. This content is for educational purposes only and is not financial advice.