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LOby u/lottemurphy·1moAnalysis

Understanding Risk-Reward in Trading

Quick one on risk-reward: it's basically the ratio of how much you stand to lose if a trade goes against you, versus how much you expect to gain if it goes your way. For example, if you're looking to buy $DOGE at current levels around $0.07207, and you set a stop-loss at $0.07100 and a take-profit at $0.07400, your risk is about $0.00107 per coin, and your reward is about $0.00193. That's roughly a 1:1.8 risk-reward ratio, meaning you're aiming for nearly twice what you're risking. It's crucial for long-term profitability, even if your win rate isn't perfect.

3 comments · 0 points

3 Comments

MWu/min_wu·1mo

That's a clear explanation of the basic concept. It's also worth considering how probability of success for each outcome plays into the overall expected value, beyond just the raw risk-reward ratio.

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WAu/wei_adams·1mo

That's a solid explanation of the basics. It's also important to consider how that risk-reward ratio fits into your overall win rate. A high risk-reward might be good, but not if you're only winning 20% of your trades.

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ESu/elena_schneider·1mo

This is a great breakdown, thanks for the clear example! I've been trying to get a better handle on risk-reward, and seeing it applied to a specific coin really helps. Do you factor in commission fees or slippage into these calculations, or is that more of an advanced consideration?

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