Understanding what RR is and how to calculate it to make smart investment decisions

BoredStaker · 2026-02-24T12:19:46+00:00

Risk Reward Ratio (RR) is a vital tool for investors, indicating the potential reward for a given risk. A higher RR suggests a more worthwhile investment, guiding traders in decision-making and risk management while assessing investment options and setting stop-loss limits.

BoredStaker

2026-02-24 12:19:46

Abstract generation in progress

RR (Risk Reward Ratio) is an indispensable tool for making investment decisions, which helps investors understand “How much profit do we have to risk 1 baht?” This metric is very important for the success of an investment portfolio. If the risk is exceeded, RR will warn you that the investment may not be worth it.

RR is an important ratio that traders need to know.

The Risk Reward Ratio (RR) represents the relationship between “risk” and “reward”. Usually, a higher RR means a more cost-effective investment. While a lower RR indicates a lot of risk but little return.

The meaning of the RR value is as follows:

High RR = Low risk but high chance of profit (e.g. risk 100 baht if you win 300 baht)
Low RR = Taking a lot of risk but getting a little profit (e.g. risk 100 baht, but if you only win 50 baht)

Why is RR an important aid in investment evaluation?

Professional traders value RR first because it helps answer the fundamental question, “Is this country really worth it?” which is not based solely on hope.

Effective comparison of investment options

If there are two investment options:

Option 1: Company X shares offer an expected return of 20%, but the risk of a loss of 50%
Option 2: Company Y shares offer an expected return of 10%, but the risk is only 5%.

If you just look at the numbers, you might think that option 1 is better, but when you use RR to calculate, option 1 gets 0.4 while option 2 gets 2.0, which means that option 2 is more cost-effective.

Effective risk management

RR helps investors set a stop loss logically, that is, to determine the level of acceptable sacrifice from the source, for example, if the stop loss is set at 50% and invest 10,000 baht, then we are not willing to lose more than 5,000 baht.

Formula and procedure for calculating RR correctly

Basic recipe:

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