Understanding Risk-Reward Ratios for European Equities

When looking at something like the DAX or individual European stocks, a crucial concept is the risk-reward ratio. This simply measures potential profit against potential loss on a trade, often expressed as 2:1 or 3:1. For example, if you're risking 100 points for a potential gain of 200 points on a DAX long, that's a 2:1 ratio. It's vital to assess this before entering any position; aiming for at least a 2:1 or better ensures that even if you're not right every time, your winning trades can still offset your losing ones.