Measure Reward-to-Risk Ratio (RRR)

• key Takeaways
  

1. The risk/reward ratio is used by traders and investors to manage their capital and risk of loss.
2. The ratio helps assess the expected return and risk of a given trade.
3. An appropriate risk reward ratio tends to be anything greater than 1:3.

• How to Measure Reward-to-Risk (RRR) ?
  

1. Evaluate the potential price levels for your stop loss (SL) and profit target (PT)
2. Measure the distance between your entry and your stop loss (SL). This is your “Potential Risk“.
3. Measure the distance between your entry and your profit target (PT). This is your “Potential Reward“.
4. Divide the two: Potential Reward / Potential Risk.

• RRR Calculation
  

1. Potential Risk = 66.24 - 63.73 = 2.51
2. Potential Reward = 63.73 - 54.97 = 8.76
3. RRR = Potential Reward / Potential Risk = 8.76/2.51 = 3.49