Risk & returns
Risk and reward describe the harmful and beneficial outcomes attached to a choice. A payoff ratio alone is incomplete because probability, frequency, path and estimation error also matter.
Make it click
A prize ten times larger is not automatically attractive if its chance is tiny and the entry loss is repeated. Both the size and likelihood of every outcome matter.
Now put that into markets
Strategies often quote target upside versus stop distance, but realised results can gap, slip and follow a distribution rather than two neat endpoints.
Expected value combines probabilities and payoffs; drawdown and position sizing address the path. Reward estimates may already be reflected in price.
Demand a defined horizon, downside, upside, probability basis and costs. Compare realised distributions with the planned payoff.
A favourable-looking ratio can hide a very low win rate, rare catastrophic loss or arbitrary target. Risk cannot be reduced to one denominator.
Takeaway
