# Risk-Reward Ratio

Always look for trades with a good risk-reward ratio.

*- What's a good risk-reward ration – you may ask.*\
\- That's a good question! Ideally, aim for at least a 1:2 ratio, meaning you’re willing to risk $1 to potentially make $2. This helps ensure that your winners can cover your losers and still leave you with a profit. For day trading and scalping, it should be even more: at least 1:3.

### Exercise

**Objective:** identify trades with a favorable risk-reward ratio.

**Scenario:** you’re eyeing a trade on USD/JPY. You’re willing to risk 100 pips to potentially make 300 pips.

**Steps:**

1. **Set risk level.** decide your stop-loss 100 pips below your entry point.
2. **Set reward level.** set your take-profit order 300 pips above your entry point.
3. **Enter the trade.** place your buy or sell order with these parameters.
4. **Check ratio.** ensure the risk-reward ratio is 1:3 before entering.
5. **Monitor.** track the trade to see if it meets your risk-reward expectations.
