← Glossary · Risk and markets
Risk-reward ratio
Possible gain to the target divided by possible loss to the stop.
The risk-reward ratio compares how much you could gain up to the target with how much you could lose down to the stop. With a target 10 % above entry and a stop 5 % below, it is 2: twice as much upside as downside.
A good ratio on its own says nothing about how likely the target is. But it shows whether an entry is worth it at all: below 1 you would need to be right far more often than wrong just to break even. DipCatcher only gives four stars when the target is clearly further away than the stop.