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What is Risk to Reward Ratio?

Posted By On 8/17/2011 12:45:00 PM Under ,

Risk to reward is a risk control mechanism which ensures that one is able to gain more in positive movement and suffers less in case of a stock movement in negative direction. As a special strategy one should go for stocks which are moving above levels which are ending in Rs 10 or Rs 100, Rs 150, Rs 200 and so on as these figures act as a psychological support for the stocks and one can go short as and when these levels are broken as in that scenario these stocks become psychological barrier.

if say risk to reward ratio is 1:3, it means that one can lose 1 unit of money in case call do not progress as desired and can gain 3 unit of rupee in case call works as desired. The risk to reward ratio ensures that money management is always in place and it reduces the risk element.

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