Risk reward ratio explained before you click

Anyone looking at entry, stop, and targets and unsure what the numbers are for. The ratio is a filter you apply before a click. It is not an instruction to take the trade.

Entry is the price area the plan is about. The stop, or invalidation, is the price that means the structure you named did not hold. The target is an area already visible on the chart, not a hope pasted beyond it.

Risk is the distance from entry to invalidation. Reward, in this narrow sense, is the distance from entry to the first target. Divide reward by risk. A ratio near 1 means you are asking price to travel about as far in your favor as it would travel to prove you wrong. A larger ratio means the target is farther than the invalidation.

Wait when the invalidation is so far that the loss, at the size you would actually use, is bigger than you decided in advance. Wait when the target is invented — a round number with no structure behind it — because then the “reward” is not on the chart.

Wait when price is between levels and both directions are equally easy to narrate. A ratio can be calculated for a story. That does not make the story the chart.

A 3-to-1 sketch can lose three times and win once and still be a sketch. It says nothing about how often either path happens. BEAR may show a probability next to a scenario; that figure is a model’s description of the picture, not a promise of frequency in live markets.

Position size is a separate choice. A flattering ratio with too much size still blows an account. A modest ratio with money you cannot lose is still the wrong trade. You choose the size. The ratio does not.