Risk/Reward Ratio

Definitions

1, The relationship between the probability of loss and profit. This ratio is often used as a basis for trade selection or comparison.

2, A calculation equal to the potential reward divided by the potential risk of a position. A long position entered at 100 with potential reward estimated at 120 and potential risk of 90 would have a reward-to-risk ratio of 20:10, or 2 to 1. Generally, a higher reward-to-risk ratio is a more appealing trade. For a long position, potential reward might be based on breakout projections, resistance levels or retracement estimates. Potential risk might be based on support levels, stop or loss requirements.

Mobile Flip Menu

Close Drawer Nav

2024 © FINANCE-PEDIA.COM