What the risk-reward ratio is
Every trade has two numbers that matter before you even enter: how much you can lose if it goes wrong (your risk) and how much you can gain if it goes right (your reward). The risk-reward ratio compares them. If you buy at ₹100, set a stop-loss at ₹95, and a target at ₹110, your risk is ₹5 and your reward is ₹10 — a ratio of 1:2. You're risking one rupee to make two.
Why a good ratio matters more than being right
Beginners obsess over being right. Professionals obsess over the ratio. With a 1:2 ratio, you can be wrong more often than you're right and still make money: lose ₹5 on three trades (−₹15), win ₹10 on two (+₹20), and you're still ahead. A good ratio means your winners more than pay for your losers, so you don't need a crystal ball — you need discipline.
What position sizing is
Position sizing decides how many shares to buy so that a single losing trade only costs you a small, survivable amount. The common rule is to risk no more than 1-2% of your total capital on any one trade. With ₹1,00,000 and a 2% rule, you risk ₹2,000 per trade. If your stop is ₹5 below entry, you can buy 400 shares (₹2,000 ÷ ₹5). The wider your stop, the fewer shares you buy — the risk stays fixed.
The stop-loss defines your risk
Your stop-loss isn't a suggestion — it's the line that turns an unknown loss into a known, planned one. It's what makes position sizing possible, because the distance from entry to stop is your risk per share. Move your stop further away and each share risks more, so you must buy fewer. The stop-loss is the single most important tool for surviving long enough to let good ratios play out.
Adjust the trade above until the scale tips green and the ratio is at least 1:2 — then take the quick check below.