Understanding Risk-Reward in Practice

Many new traders focus solely on potential profit. A good risk-reward ratio, say 1:2 or higher, means for every dollar you risk, you stand to gain two. This doesn't guarantee a win on any single trade, but over many trades, it means you can be profitable even with a win rate below 50%. For example, on a stock like $PLTR at 172.01, if your stop is at 169.00 (a $3.01 risk), your target should be at least 178.03 for a 1:2 ratio, or higher for better ratios.