Stock Market Beginner’s Weekly Educational Guide 4 Day-3 : Understanding Volume in Trading by CapitalKeeper
By CapitalKeeper | Beginner’s Guide | Indian Sock Market | Market Moves That Matter I 1st July 2025
Week 4 – Day 3: Risk-Reward Ratio & Trade Journaling – The Secret to Consistent Profits
🎯 Objective:
Help new and aspiring traders build long-term profitability through proper risk-reward management and consistent trade journaling.
What is Risk-Reward Ratio (RRR)?
The Risk-Reward Ratio compares your potential loss on a trade to the potential gain.
Formula:
Risk-Reward Ratio = Potential Loss / Potential Gain
✅ Example:
- You buy a stock at ₹100
- Stop-loss = ₹95
- Target = ₹115
- Risk = ₹5 | Reward = ₹15
- RRR = 1:3 (Ideal!)
🎯 Golden Rule: Never risk more than you can gain. Stick to minimum 1:2 or 1:3 RRR for consistency.
🛠️ How to Use RRR in Daily Trading:
| Step | What to Do |
|---|---|
| 1. Define Entry | Use breakout or pattern confirmation |
| 2. Set Stop Loss | Based on chart (support/resistance/ATR) |
| 3. Set Realistic Targets | Based on technical levels, Fibonacci, or RRR |
| 4. Place Trades Only If | RRR is 1:2 or better |
📌 Note: Avoid overtrading even in high conviction setups if RRR is below 1:1.
📓 Trade Journaling: Your Path to Improvement
A trade journal is your personal trading logbook. It helps track:
- Winning & losing trades
- Emotional patterns
- Strategy performance
- Areas for improvement
📘 What to Record in Your Trade Journal:
| Field | Sample Entry |
|---|---|
| Stock Name | ITC |
| Entry Price | ₹440 |
| Stop Loss | ₹425 |
| Target Price | ₹475 |
| Actual Exit | ₹468 |
| RRR Achieved | 1:2.3 |
| Reason for Trade | Bullish breakout from flag + RSI confirmation |
| Mistakes/Learnings | Exited early due to news panic |
🧠 Use Excel, Notion, Google Sheets, or apps like TraderSync or Edgewonk.
🚀 Benefits of Risk Management & Journaling:
| Risk-Reward Discipline | Journaling Habit |
|---|---|
| Consistent capital growth | Reflective improvement |
| Limits emotional trading | Builds accountability |
| Helps scale trades smartly | Identifies winning strategies |
🔎 Common Mistakes to Avoid:
- Setting random stop-loss levels
- Ignoring reward zones in favor of quick exits
- Not recording emotions or lessons after a trade
- Chasing trades with poor RRR
Quick Recap:
| Tip | Why It Matters |
|---|---|
| Always check RRR before entry | Prevents unnecessary risk |
| Use fixed SL + flexible target | Gives trades room to breathe |
| Log every trade in journal | Sharpens decision-making over time |
| Analyze journal weekly | Spot winning setups and avoid past errors |
📍 Conclusion:
If you can master the discipline of managing risk and learning from your own trades, your path to profitable trading becomes much clearer.
✨ Every great trader tracks two numbers:
→ Risk-Reward and
→ Trading Mistakes
Start yours today on CapitalKeeper.in 📊
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