Course Content
What Is the Risk/Reward Ratio and How to Use It
Should I risk my time to get rewarded with the information in this article? The risk/reward ratio tells you how much risk you are taking for how much potential reward. Good traders and investors choose their bets very carefully. They look for the highest potential upside with the lowest potential downside. If an investment can bring the same yield as another, but with less risk, it may be a better bet. Interested to learn how to calculate this for yourself? Let’s read on. Contents Introduction What is the risk/reward ratio? How to calculate the risk/reward ratio The reward/risk ratio Risk vs. reward explained Closing thoughts
What Is the Risk/Reward Ratio and How to Use It
About Lesson
Whether you’re day trading or swing trading, there are a few fundamental concepts about risk that you should understand. These form the basis of your understanding of the market and give you a foundation to guide your trading activities and investment decisions. Otherwise, you won’t be able to protect and grow your trading account.
We’ve already discussed risk managementposition sizing, and setting a stop-loss. However, if you’re actively trading, there’s something crucially important to understand. How much risk are you taking in relation to the potential reward? How does your potential upside compare to your potential downside? In other words, what is your risk/reward ratio?

In this article, we’ll discuss how to calculate the risk/reward ratio for your trades.