One of the most overlooked yet critical aspects of successful trading is the risk-to-reward ratio. Whether you’re a beginner or an advanced traders, this fundamental principle can make or break your long-term profitability—especially when using strategies like the Sonic System.
What Is an Ideal Risk-to-Reward Ratio?
You’ve probably heard that you should aim for a 60/40 or 50/50 risk-to-reward setup. What does that mean?
Let’s break it down:
- A 50/50 ratio means your potential profit is roughly equal to your potential loss.
- A 60/40 ratio slightly tilts the odds in your favor—you’re risking $40 to make $60.
And in most trading scenarios, that’s just fine.
Take a look at the example below. If your entry point is in the middle, and both the target and stop loss are equally distant from that entry, that’s a 50/50 setup. Slightly risking more than your potential reward is okay—as long as it’s within reason. But if you’re risking twice as much as you could gain, that’s a red flag.
Avoid This Common Pitfall
When you find yourself in a setup where the stop loss is significantly larger than the target, you’re setting yourself up for long-term failure—even if the trade feels right.
If one losing trade wipes out the gains of two or three previous winners, you’re not trading—you’re gambling.
This goes against the core principles of the Sonic System, which emphasizes disciplined setups and consistent execution.
Setting Proper Targets with ATR
A good starting point for setting stop losses and targets is the Average True Range (ATR). Here’s how we do it:
- Stop Loss: 0.9 to 1x ATR
- Profit Target: 1x to 1.5x ATR
For example, using 0.9 ATR for your stop and 1.5 ATR for your target allows some flexibility while keeping your risk tightly managed.
The Best Trades Move In Your Favor Immediately
Here’s a key insight learned from years of trading:
Winning trades almost always move in your favor right away.
If you enter a position and the market immediately pushes in your direction—great. But if the next few candles are indecisive or start to pull back, that’s your signal. It might be time to get out early and preserve capital.
Use this as an internal “test”:
If the trade isn’t working within the first few candles, consider exiting at break-even or with a small loss instead of waiting for a full stop-out.
Know When to Walk Away
It’s tempting to overtrade—especially after a few wins. But don’t let emotion drive your decisions. Many traders give back morning profits by continuing into the afternoon without clear setups.
Discipline means knowing when to stop as much as knowing when to enter.
Final Thoughts
Mastering risk-to-reward is non-negotiable for long-term success in trading. Stick to favorable ratios, manage trades proactively, and follow the Sonic System rules consistently.
Ready to take the next step?
👉 Visit DayTradeToWin.com and sign up for a free member account. Gain access to trial software like the ABC tool and the full Sonic system. Start learning the right way—with price action strategies, not outdated indicators.
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