There's one question almost nobody asks before entering a trade, and it's the most important of all: how much can I lose and how much can I win? That comparison is the risk/reward ratio, or R:R. It's a simple idea, with schoolyard maths, that completely changes the way you see trading. Let's look at it with clear numbers.
R:R compares what you risk (the distance to your stop) with what you expect to win (the distance to your target). It's written as a proportion: 1:2, 1:3, etc.
An R:R of 1:2 means that for every euro you risk, you aim to win two. If the 1 is your maximum loss (your stop) and the 2 is your target, you already know the shape of the trade before entering. If you don't know what a stop is, first read what the stop loss is — it's the piece that makes it possible to calculate risk.
Imagine you risk 100 € per trade (that's the distance to your stop). Let's look at two cases:
Notice something: in both cases, what you lose when you're wrong is always the same, 100 €. What changes is how much you win when you're right. And that's where all the magic is.
This is what throws everyone off at first: you don't need to be right most of the time to make money. You need your wins to be bigger than your losses.
Let's do the maths with R:R 1:2 and 10 trades. Suppose you only get 4 out of 10 right (you're wrong 60% of the time):
With R:R 1:3 the effect is even stronger: just 3 wins out of 10 would be enough to end up positive (3 × 300 = 900 versus 7 × 100 = 700). That's why serious traders keep repeating that trading isn't about being right, it's about managing the size of your wins and your losses well.
Many people do exactly the opposite without realising: they risk a lot to win a little. They close winners right away ("just in case") and let losers run ("it'll bounce back"). That's an inverted R:R, like 3:1: they risk 300 to win 100. With that ratio, you can be right 70% of the time and still empty the account. The feeling of "I'm right a lot" fools you while the balance drops.
Before entering, have these three points clear on the screen:
With those three numbers, work out the ratio. If it comes out worse than 1:1.5 or 1:2, many traders simply don't enter: the trade isn't worth it. Planning this way takes the pressure off, because you no longer decide with your heart in the middle of the move: you decided with a cool head before risking a single euro.
A good ratio per trade is the foundation, but it isn't everything. Above it sits your daily risk control: how much you accept losing over a whole day before you stop. And below it is your mind: if you trade angry or scared, you'll break your own R:R plan without noticing. For that, look at daily risk control and trading psychology. The three pieces together are what protect the account.