Brian Steven Bailey#87

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What is risk-reward ratio and how does it shape forex performance?

Risk-reward ratio compares potential profit to potential loss. For example, risking 50 pips to target 150 pips creates a 1:3 ratio. Institutions design portfolios with average ratios above 1:2 to ensure positive expectancy. Retail traders often focus only on win rates, ignoring ratios. Benefits: profitability even with low win rates, clearer position evaluation. Risks: aiming for unrealistic ratios may reduce win probability. The sweet spot balances probability with reward, often between 1:2 and 1:3. Risk-reward is the cornerstone of expectancy—traders who ignore it struggle, while those who master it thrive over time.