Saving, Managing Debt, and Budgeting

Risk / Reward

How do I calculate a risk/reward ratio?

You may calculate a risk/reward ratio by first deciding the highest price at which you are willing to sell, as well as the lowest price at which you are willing to tolerate, and then deciding how much of your investment you are willing to lose. You divide your net profit, which is the reward (after fees and commissions) by the price of your maximum risk. Through the use of stop-loss orders, you can sell at or near your target prices.


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