What is the risk/reward ratio on a stock trade?

Risk/reward ratio compares how much a trade stands to gain against how much it stands to lose: (take-profit − entry) / (entry − stop-loss). Below 2:1, the potential upside may not justify the downside.

Why gate on 2:1, not just direction

Direction alone is not enough to make money: a trader who is right 60% of the time but risks $2 to make $1 on every trade can still lose money over time. Quantustik's north-star rule treats risk/reward below 2:1 (or hostile market conditions) as a reason to flag WAIT/AVOID rather than a soft BUY, regardless of how confident the directional call looks.

Live example: AAPL's conservative 3-month risk/reward ratio is currently 0.4:1 — for every $1 risked to the stop-loss, the plan targets roughly $0.4 of reward to the first take-profit rung. See the full AAPL forecast for the full plan.

Conservative vs. optimistic risk/reward

Quantustik computes two versions: a conservative ratio gated against the first take-profit rung (TP1, most likely to be reached), and a display-only "optimistic" ratio against the second rung (TP2, roughly a 25%-likely reward). Only the conservative number gates the green 2:1-or-better colouring.

Frequently asked questions

What counts as a good risk/reward ratio?

2:1 or better is Quantustik's minimum gate for a conviction signal. Below that, the recommendation degrades to WAIT/AVOID even with a favorable directional call.

How is risk/reward calculated?

(take-profit minus entry) divided by (entry minus stop-loss), using the conservative TP1 level for the gating ratio.

Can a trade have great risk/reward but still be a bad idea?

Yes — risk/reward only measures the payoff shape, not the win probability or market conditions. Quantustik combines it with model confidence and position sizing.