After trading for a long time, everyone will understand a principle: there is never a 100% accurate forecast in the market, no one can buy at the lowest point and sell at the highest point every time.

The core of our ability to make stable profits is not based on how high the win rate is, but on whether we can understand the risk-reward ratio. Many people incur losses not because they can't understand the market, but because they don't understand how to pair the risk-reward ratio. They make small profits and suffer large losses, even if they win 7 out of 10 trades, they still end up losing money overall.

So, what exactly is the risk-reward ratio, and how should ordinary people choose a risk-reward ratio that suits them?

To put it simply, the risk-reward ratio is the ratio between the expected profit you can make from each trade and the loss you're willing to accept as a stop loss.

For example, if you go long, with a profit target planned to earn 300 points, and you are only willing to accept a loss of 150 points, then the risk-reward ratio is 2:1. This means that earning one trade offsets the loss of two trades.

Many beginners have a fatal misconception: they focus solely on the win rate, always wanting to make money on every single trade. They can't bear to set stop losses and stubbornly hold on when they incur losses, while they hurriedly exit with even a small profit. Over time, this leads to: running off with small profits while holding onto substantial drawdowns. Even if the win rate reaches 70-80%, just one large loss will result in the loss of all previous small profits, and even a significant reduction in capital.

This is a typical example of a seriously unbalanced risk-reward ratio and is the root cause of long-term losses for the majority of people.

So how should one choose a suitable risk-reward ratio? There isn't a unified standard; it mainly depends on your trading style and holding period.

First type: short-term swing traders. A risk-reward ratio of 1.5:1 to 2:1 is suitable. Short-term trading is essentially about capturing small fluctuations, and the market space is limited. Don't expect to make several times the profit. This ratio is the most comfortable; there is no need to hold on for a long time. As long as the trend is correct, it’s easy to earn profits, and the margin for error is high. There’s no need to wait for a massive market move, making it suitable for most average traders.

Second type: medium-term trend traders. A risk-reward ratio of 3:1 or even 4:1 is suitable. When trading trends, you must be patient; the stop loss can be slightly wider, but the profit target should be enlarged. Capturing a complete trend move can yield one trade's profit that can cover several small stop-loss losses. Even with a win rate of only 50%, you can achieve stable profits over the long term. This mode is not suitable for frequent operations and only makes trades on high-certainty structural market movements.

Third type: conservative and steady players. There is no need to pursue a high risk-reward ratio; maintaining around 1.2:1 is sufficient. Not seeking out hefty profits, just aiming for steady accumulation. Not being greedy for the last segment of profits in a trend, taking profits when they are available, and strictly setting stop losses. Although the gains may be slow, the biggest advantage is that it is less likely to incur large losses, and the mindset won't be swayed by market movements. This approach is suitable for those who have a tendency to get anxious or cannot withstand big fluctuations.

When choosing a risk-reward ratio, remember three practical principles that are more important than memorizing ratios.

First, the risk-reward ratio takes priority over the win rate. Trading is not about who makes more trades, nor is it about who has a higher win rate, but about whether one winning trade can cover multiple losses. As long as the risk-reward ratio is reasonable, even a win rate of only 40% can still achieve stable long-term profits.

Second, do not force a high risk-reward ratio. When you are clearly in a short-term market, trying to force a 3:1 or 4:1 target will only lead to giving back profits and turning into a loss. The profit should be proportionate to the market's size—taking as much as the market gives, without greed or speculation, is the way to go.

Third, set the stop loss first and then the take profit. Many people are used to thinking about how much they can earn first, without setting a stop loss, which completely reverses the order. Professional traders always think beforehand about how much loss they can accept, set a stop-loss level, and then logically set a take-profit target based on structure, support, and resistance. First control the risk, then discuss profits.

Lastly, to be frank: trading itself is a probability game, and no one can always read the market correctly. Truly mature traders no longer obsess over each individual prediction but instead focus on reasonable risk-reward ratios, strict stop losses, and position control.

There’s no need to pursue a perfect win rate, nor to fantasize about getting rich overnight. As long as you choose a risk-reward ratio suitable for yourself, rectify the habits of running after small profits and stubbornly holding onto large losses, and gradually develop your trading rhythm, you can firmly establish yourself in the market over the long term.

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Disclaimer: This article is only for sharing trading ideas and does not constitute any investment advice. All market trading involves risks; participate rationally and strictly control positions.

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