Quick Look: Risk-Reward for Dummies

Alright, let's cut to the chase on risk-reward. It's not rocket science, but I see too many new traders – and even some old ones – ignore it. Simply put, it's the ratio of how much you stand to lose versus how much you stand to gain on a trade.

Say you're eyeing $SI and you think it might bounce from current levels around 19.34. Your analysis suggests a good support might be at 18.60, and a realistic target if it bounces is 20.10. Your potential loss is 19.34 - 18.60 = 0.74. Your potential gain is 20.10 - 19.34 = 0.76. Your risk-reward is roughly 0.74 : 0.76, or about 1:1. That's pretty low. Generally, you want to be aiming for at least 1:2 or higher. Meaning, for every dollar you risk, you want to be able to make two dollars. It's fundamental to longevity. Even if your win rate isn't stellar, a good risk-reward ratio can keep you profitable over the long run. Stop chasing pennies and start thinking about the bigger picture.