The risk/reward ratio (R:R) compares the potential loss of a trade (risk) to its potential gain (reward), expressed as a ratio like 1:2 or 1:3. A 1:3 ratio means risking $1 to potentially gain $3. Risk/reward is fundamental to professional trading: even with a 40% win rate, a trader using 1:3 R:R is profitable (4 wins times $3 equals $12; 6 losses times $1 equals $6; net profit $6). A 1:1 R:R requires above 50% win rate to be profitable; a 1:2 R:R requires only 34%; a 1:3 R:R requires only 26%. Calculating R:R requires defining three levels: Entry price (where you buy), Stop loss (where you are wrong – your maximum risk per unit), and Target (where you take profit). Position sizing ties to R:R: risk a fixed percentage (1-2%) of total capital per trade so that even a losing streak cannot blow the account. Cryptoforme Winner tool presents trades with pre-calculated risk/reward so members can immediately assess whether a setup meets their minimum threshold (typically 1:2 or better).
Example: Example: A BTC trade: Entry at $65,000, Stop at $62,000 (risk $3,000), Target at $73,000 (reward $8,000). R:R equals 1:2.67. Risking 1% of a $50,000 account means $500 risk. Position size: $500 divided by $3,000 per BTC equals 0.167 BTC. If correct: +$1,333 profit (+2.67%). If wrong: -$500 loss (-1% portfolio). Maths ensures no single bad trade causes significant damage.
Learn more: Cryptoforme Winner Tool
