## The number you must understand to make money: RR value

Many people jump into investments aiming directly for their target, getting excited when they see a 30% profit potential, while ignoring the risk of losing 50%. Such behavior is like only focusing on returns and ignoring costs; sooner or later, you'll suffer losses. Actually, there's a simple tool to help you avoid pitfalls — that is the **RR value**, also known as the Risk Reward Ratio.

## What exactly is RR?

**RR = Expected Return ÷ Possible Loss**

In simple terms, RR is a scale that measures whether an investment is "worth it." It compares how much you can earn versus how much you might lose. The higher the ratio, the more worth betting on; a very low ratio is basically gambling.

## Why should you pay attention to RR?

### Visual comparison of investment opportunities

Imagine two options in front of you:

**Option A**: Expected profit 20%, but possible loss 50%
**Option B**: Expected profit 10%, but possible loss 5%

Without considering RR, you might think Option A is more attractive. But calculating RR makes it clear — the RR for Option B is 2, while for Option A it's only 0.4. This indicates that choosing B is smarter because the cost of earning 1 dollar is lower.

### Keep risk under control

With RR combined with stop-loss settings, you can have a clear expectation of losses. For example, if you're willing to accept a 50% risk, set your stop-loss at that level to ensure you don't go beyond your bottom line. This way, even if you hit a pitfall, the loss is within your control, not trapped.

## How to calculate RR?

**Formula: RR = (Target Price - Entry Price) ÷ (Entry Price - Stop-Loss Price)**

- Target Price = the price you predict it will reach
- Entry Price = your entry point
- Stop-Loss Price = your cut-loss point

### Do a real calculation

Suppose you like a stock currently at 100 units, and you expect it to rise to 130 units, with a stop-loss set at 80 units. Then:

RR = (130 - 100) ÷ (100 - 80)
RR = 30 ÷ 20
**RR = 1.5**

This ratio means that if successful, you earn 30 units; if it fails, you lose only 20 units. The profit-to-loss ratio is 1.5:1, which is acceptable.

## Common risk types in investing

You need to understand what risks you might face:

**Liquidity Risk** — No buyers when you want to sell
**Interest Rate Risk** — Changes in interest rates affect returns
**Exchange Rate Risk** — Foreign currency fluctuations impact actual gains
**Inflation Risk** — Money devalues, eroding returns
**Correlation Risk** — Multiple assets decline simultaneously
**Political Risk** — Policy changes disrupt plans

## What RR value is "not losing"?

There's a market consensus: **RR ≥ 2 is considered profitable**.

- **RR = 1** → Risk equals reward, the baseline for conservative investors
- **1 < RR < 2** → Moderate risk preference, still acceptable
- **RR ≥ 2** → The standard for advanced players; truly worth doing

But a high RR doesn't guarantee profit, and a low RR doesn't necessarily mean losing money. The key is **the combination of RR and win rate**.

## RR and win rate: one goes up, the other down

These two metrics are like a seesaw. The higher the RR, the lower the win rate tends to be; the higher the win rate, the lower the RR must be to stay profitable.

For example, if you use a strategy with RR of 3:1 (earn 3 units, lose 1 unit), you only need a 25% win rate to break even. Calculation:

Suppose you make 100 trades, winning 25 and losing 75:
- Winning 25 trades: 25 × 3 = 75 units
- Losing 75 trades: 75 × 1 = 75 units
- Result: break-even

**This table shows what RR you need for different win rates:**

| RR Ratio | Minimum Win Rate |
|----------|------------------|
| 1:1 | 50% |
| 2:1 | 33% |
| 3:1 | 25% |
| 5:1 | 17% |

## How to use RR in practice?

**RR = 1:1** → Capital preservation strategy, suitable for beginners to start safely

**RR = 1.5 or higher** → Entry-level profit strategy, moderate risk, reasonable returns

**RR = 2 or higher** → Advanced strategy, requires high win rate or multiple compounding

**RR = 3 or higher** → Professional level, one big win can offset multiple small losses, but demands high precision

Remember: high RR doesn't mean guaranteed profit; you also need a reliable trading system and discipline.

## Practical example: calculating a real RR

Taking BTS stock as an example, current price is 7.45 THB, you expect it to rise to 10.50 THB, with a stop-loss at 4.50 THB.

**RR = (10.50 - 7.45) ÷ (7.45 - 4.50)**
**RR = 3.05 ÷ 2.95**
**RR ≈ 1.03**

This RR isn't very high, but it still offers a chance to profit. However, if your win rate is below 50%, you'll lose money in the long run. So, your trading system's reliability also matters.

## Final words

**RR is an essential lesson in investment decision-making.** It can't guarantee you'll make money, but it tells you whether the profit-to-loss ratio is worth risking.

Good investing isn't about winning every trade but ensuring that when you win, you earn enough, and when you lose, you lose little. Learn to calculate RR, combine it with your own win rate data and trading discipline, and you'll be able to survive longer and earn more steadily in the market.