Unit 2 · Level 2 · Risk Management
Risk : reward
Risk:reward (R:R) compares what you might lose to what you might win. Risk $100 to make $300? That's 1:3. At 1:3 you can be wrong SIXTY percent of the time and still make money. Good ratios buy you the right to be human.
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What you get asked
Entry $100, stop at $95, target at $115. What's the risk:reward?
Risk = $5 (entry to stop), reward = $15 (entry to target). 15 ÷ 5 = 3. You'd say 'one-to-three'.
At 1:3 risk:reward, you win only 4 trades out of 10. Result?
Read that again: LOSING most of your trades, MAKING money. Win-rate obsession is a beginner trap; expectancy is the real game.
Traders measure profits in 'R', multiples of the amount they ___ on the trade.
'I made 2R' means 'twice what I risked'. Thinking in R makes every trade comparable, whatever its size.
Match the setup to its verdict
Before every trade, one question: 'am I being paid enough for this risk?' If not, no trade. Boredom is a position too.
Entry €100, stop €95, target €115. What is the reward-to-risk ratio? (Reward ÷ risk, just the number.)
Risking €5 to make €15 → 15 ÷ 5 = 3R. At 3R you can be wrong on two trades out of three and STILL come out ahead. That's why R:R is checked before entry, not after.
Where do good targets and stops come from? (Hint: you learned this in the last unit.)
Everything connects: levels give you WHERE, sizing gives you HOW MUCH, R:R tells you WHETHER. That triangle is a complete trade plan. 🐜
The rest of this unit
Position sizing, the 1% rule, risk:reward, and defeating your own brain. The unit that keeps accounts alive.