Understanding Risk vs. Reward (RR) is crucial in trading.
It's about knowing what you stand to lose if your stop-loss is hit and what you could gain if your target is reached.
A reputable trader and mentor prioritize a favorable risk-reward ratio for your trades, ideally aiming for 1:1 or 1:2.
For instance, let's say you enter a trade with a $20 investment. Your target should be $22-$24, while your stop-loss is set at $18.
This means if your stop-loss is hit, you'll only lose $2, but if your target is met, you'll gain $2 or even $4 if it reaches $24.
Many traders claim high accuracy rates, but often their success hinges on skewed risk-reward ratios like 10:1.
This means if the stop-loss is hit, you lose $10, but if the target is reached, you gain only $1. While this can inflate accuracy rates, it poses a significant risk, potentially leading to substantial losses even with a few stop-loss hits.
Legitimate traders prioritize maintaining balanced risk-reward ratios to safeguard your portfolio. Before engaging with any trader, scrutinize their risk-reward ratios closely to ensure they prioritize your financial security over exaggerated success claims.
Stay vigilant and stay blessed! 🍻
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