Risk Management
Risk/Reward
Also called: risk reward, risk/reward, r/r
The ratio between what you're risking on a trade (distance to your stop) and what you could potentially gain. Buying weakness gives me much better risk/reward than buying strength because my stop is closer and my position can be larger for the same dollar risk. If I'm risking 5% to my stop I need at least 15-20% upside for the trade to make sense, and tight entries near support are the only way I consistently get that math.
In Context
“Keeping stops within 5% I don't want to have a stop wider than 5% on an initial buy because it makes size and risk reward worse.”
“Bought GOOGL against its multi-week low, tight range with good risk reward.”
“Tight stops allow bigger sizing You might have to get a few tries until it works but when you do the math and the position is sized up with risk reward really skewed, even if you get stopped 2-3 times before it sticks the gains more than take care of the losses.”
April Leaders Breaking Out·Digest