Level 3 — Becoming a Better Trader
Risk-to-reward ratios
5 minute read
Comparing possible loss and gain
Illustrative example · not live data
Before any trade, ask: how much am I risking, and how much do I stand to make? That comparison is the risk-to-reward ratio.
If you risk $100 to potentially make $300, that's a 1:3 ratio. With 1:3 trades, you can be wrong most of the time and still come out ahead — three losing trades (-$300) are covered by a single winner (+$300).
This is the single most important idea in trading. Most beginners focus on being right; professionals focus on making sure their winners are much bigger than their losers.
The trading journal on this site calculates your risk-to-reward automatically when you log a trade with an entry, stop and target — so you can see whether your trades are worth taking before you take them.
Key points to remember
- Compare what you risk with what you could make
- 1:3 means you can lose often and still profit
- Winners must be bigger than losers
- The journal works this out for you