Risk-Reward Ratio

Risk-reward ratio is simply: potential profit ÷ potential loss. If you risk 20 pips and target 60 pips, that's a 1:3 risk-reward. Pros aim for at least 1:2 on every trade — risk $1 to make $2. The beautiful thing about risk-reward is that it changes what your win rate needs to be to be profitable. At 1:1, you need to win over 50% of trades. At 1:2, you only need 35%. At 1:3, you only need 28%. Meaning you can be WRONG more than half the time and still grow your account. Most losing traders obsess over win rate. Pros obsess over R-multiples. They'd rather take a trade they're 40% confident in at 1:3 than a trade they're 60% confident in at 1:1. The math wins every time.