L'INFORMATEUR CRYPTOHome › Glossary › Risk/Reward (RR)
Risk/Reward (RR): definition
Risk/reward compares the targeted gain with the accepted loss on a trade. An RR of 1:3 targets three times the risk taken.
Definition
RR is calculated as (target − entry) / (entry − stop) for a long. With an entry at 100, a stop at 95 and a target at 115, the risk is 5 and the targeted gain 15: an RR of 1:3.
Why it's central
With an RR of 1:3, winning one trade out of four is enough to break even. A good RR lets you be profitable even with fewer than 50% winning trades.
Example with leverage
Bitcoin SHORT at $81,700, stop at $82,601 (1.10% risk), targets at $80,450, $78,500 and $76,600: RR of 1:1.4, 1:3.6 and 1:5.7. Leverage changes the result in %, not the RR.
Frequently asked questions
What minimum RR should you aim for?
Many traders turn down trades below 1:2, so that gains comfortably cover the inevitable losses.