– Glossary
Risk-to-Reward Ratio
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.
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