OP 24 October, 2023 - 07:32 PM
Risk/Reward Ratio (RR) is a coefficient showing the ratio of risk to potential profit. The specific value of RR is calculated before buying an asset and allows estimating the potential of the deal from the point of view of the trader's trading strategy.
If the risk to profit ratio is greater than 1, the risk is greater than the potential profit. When the value is below one, the potential profit is greater than the risks involved.
In terms of trading and investing, risk refers to the potential loss that a trader is willing to take when opening a position. The level of risk is usually controlled by placing Stop Loss orders, i.e. orders to automatically sell an asset when it reaches a certain price. This is an important trading tool and it is not only necessary to limit losses. The level of risk is an integral part in the process of calculating the potential profit of a trader and his trading strategy as a whole.
Profit is the difference between the purchase price of an asset and the price at which it will be sold. In the context of the RR ratio, profit is the potential level that a trader determines before entering a position to assess the potential of the trade.
If the risk to profit ratio is greater than 1, the risk is greater than the potential profit. When the value is below one, the potential profit is greater than the risks involved.
In terms of trading and investing, risk refers to the potential loss that a trader is willing to take when opening a position. The level of risk is usually controlled by placing Stop Loss orders, i.e. orders to automatically sell an asset when it reaches a certain price. This is an important trading tool and it is not only necessary to limit losses. The level of risk is an integral part in the process of calculating the potential profit of a trader and his trading strategy as a whole.
Profit is the difference between the purchase price of an asset and the price at which it will be sold. In the context of the RR ratio, profit is the potential level that a trader determines before entering a position to assess the potential of the trade.