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Risk Reward numeraire, R

The higher the risk/reward ratio you have on your trades, the fewer times you have to be right, and still make money. The total amount you are willing to risk per trade is expressed as 1R. If you only take trades that have a 1:3 risk/reward ratio, and you are correct just 50% of the time, you will have a 10R profit on ten trades.

Understanding how to use risk/return and position sizing allows you to make sure you are never over extended on a trade and allows you to always return to fight another day.



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