Risk management in practice · Lesson 3 of 3
Risk/reward and expectation
Use the ratio with your win rate and costs, not alone.
8 minute read
The ratio is only one number
A 1:2 risk/reward setup means the planned reward is twice the defined risk, before costs. It says nothing about how likely the target is to be reached, so it must be considered together with how often the setup actually works and what it costs to run.
Fees, funding on derivatives and slippage erode results across many trades. Many crypto assets also move together, so several positions can be correlated exposures to the same underlying rather than genuinely separate risks.
Key takeaway
Use these concepts to understand the market, not to assume a particular outcome. Always define uncertainty and risk before making a decision.