Elijah Taylor

查看翻译

What is risk-reward ratio and why is it central to forex strategy?

Risk-reward ratio measures potential loss vs. potential gain on a trade. Example: risking 50 pips to target 150 pips equals 1:3 ratio. Institutions design systems around favorable ratios, ensuring that even moderate win rates yield profits. Retail traders often chase high win rates with poor ratios (risking 100 to make 50), leading to long-term failure. Benefits of favorable ratios: improved expectancy, reduced reliance on prediction accuracy, and sustainable growth. Risks: unrealistic targets or too-tight stops distort ratios. Best practice: align ratio with strategy style—scalpers may accept 1:1, swing traders aim for 1:3 or more. Mastering risk-reward reframes trading from gambling to structured probability.