Risk-reward ratio matters more to me than win rate. Period. A trader who wins 40% of the time but uses a 1:3 R:R will out-earn someone with an 80% win rate and a 1:1. The math doesn't lie.
What's Risk-Reward Ratio?
Simple. You risk something to gain something. A 1:2 ratio means you risk $1 to make $2. 1:3? Risk $1, make $3.
The formula: R:R = Potential Profit ÷ Potential Loss
Stop loss is 20 pips, take profit is 60 — that's 1:3. You're risking 1 to gain 3.
My Hard Rule: Never Below 1:2
I won't touch gold unless I see at least a 1:2. This isn't a suggestion — I've stuck to it for years. Here's why.
Even with a 40% win rate, 1:2 keeps you profitable. Over 100 trades:
- 40 wins × 2 profit = 80 units
- 60 losses × 1 loss = 60 units
- Net: +20 units
With 1:1, you need 50% wins just to break even. With 1:3, only 25%. A bigger R:R gives you room to be wrong — and trust me, in gold, you'll be wrong plenty.
How I Set Take Profit
Two approaches for gold:
- Key levels: Previous day high/low, weekly pivots, Fibonacci extensions
- ATR-based: 1× to 2× the current 14-period ATR as my target
I check the R:R before I enter. If the distance to my target isn't at least twice the distance to my stop, I pass. That's it.
R:R Depends on the Market
Gold trends best during London and New York sessions. In a strong trend, I can often get 1:3 or better. In choppy, range-bound conditions, I dial it back to 1:2.
Biggest mistake I see new traders make? Forcing a high R:R when the market's stuck in a range. Gold bouncing between $2,350 and $2,370? Aiming for 1:5 means your target is outside that range — you'll never get filled.
Match your R:R to what the market gives you. Don't try to force it the other way.