Mastering Reward vs. Risk

Most traders ignore reward/risk ratios, hoping that luck will save them when things start to go bad. This is probably the main reason so many of them are destined to fail. It's really dumb when you think about it, because reward/risk is the easiest way to get a definable edge on the market house. The reward/risk equation builds a safety net around your open positions. It's designed to tell you how much can be won, or lost, on each trade you take. The secondary purpose is to remove emotion so you can focus squarely on the cold, hard numbers.