Master the "Mathematical Edge." Learn how to structure your trades so that your winners significantly outweigh your losers.
The Risk-Reward Ratio measures the potential profit of a trade compared to the potential loss. It is the core metric for determining if a trade is worth taking.
A ratio of 1:2 means that for every ₹1 of risk you take, you are targeting ₹2 of profit.
You do not need to be right 100% of the time. If you consistently maintain a 1:2 ratio, you can be wrong 50% of the time and still break even. If you maintain 1:3, you can be wrong 66% of the time and still be profitable.
Example: In a trade where you risk ₹5,000, your target profit should be at least ₹10,000 (1:2 ratio) or ₹15,000 (1:3 ratio). This mathematical cushion allows you to absorb losing streaks without depleting your capital.
Whenever you place a trade, before you click "buy," calculate your exit points:
If the potential profit does not outweigh the risk by a minimum of 1:1.5 or 1:2, it is usually a "poor quality" trade regardless of how "certain" you feel about the price direction.