01 / RISK + REWARD

Risk/reward is a planning calculation—not a trade instruction

A risk/reward ratio compares two amounts written into a plan. It describes the arithmetic between them—not the probability or outcome of a trade.

Record your own inputs

02 / THE ARITHMETIC

Two planned amounts, compared.

Planned risk amount is the amount a person uses in a plan to describe potential loss if a stated stop reference is reached. Expected reward amount is the possible gain estimated from a separate reference in that plan. Both are estimates; realized results can differ.

Expected reward amount ÷ planned risk amount = reward-to-risk multiple

Planned risk : expected reward = 1 : multiple

03 / FICTIONAL EXAMPLE

A ratio is a description of the inputs.

$50 planned risk : $100 expected reward = 1:2

That is arithmetic only: $100 divided by $50 equals 2, so the amounts can be written as 1:2. This clearly fictional example is not a setup, forecast, or recommendation.

04 / WHAT IT LEAVES OUT

The ratio is not the whole picture.

A ratio does not measure the likelihood of either amount being reached, establish a win rate, or account for uncertainty in future prices or conditions. It also cannot show how execution may differ from the written references: gaps, slippage, liquidity, transaction costs, and changing conditions can affect realized results. The calculation ranks no setups and says nothing on its own about whether a plan is suitable.

05 / RECORD THE REFERENCES

Keep the calculation connected to its context.

For a later reflection, write down what each number refers to instead of keeping the ratio by itself:

Entry reference: the price or point used for the written plan.
Stop reference: the point used to estimate planned risk.
Expected-reward reference: the point used to estimate a possible reward amount.
Reason: the written context for those references, including what remains uncertain.

06 / YOUR OWN RECORD

Put your inputs beside the plan.

Use the manual RiskLens check to record your own planned risk and expected reward amounts with the surrounding context. It is a reflection tool, not an instruction about what to do.

Record your own inputs

Continue with the pre-trade checklist or the one-page plan template. Educational reflection only. Not investment advice. RiskLens does not provide recommendations to buy, sell, or hold securities.