Risk/reward ratio
Also called: reward-to-risk ratio, risk reward, R multiple
The distance from entry to target divided by the distance from entry to stop, comparing a trade's possible gain with its possible loss.
A ratio of 2 means the target is twice as far as the stop. The ratio says nothing about how likely the target is, so a high ratio with a low chance of success can be worse than a lower ratio with a higher chance.
Learn more in these lessons
- Risk/reward and position size per tradeHow many shares should you buy, and what does risk/reward mean?
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