How do you define the risk/reward ratio of the portfolio?

the risk/reward ratio is determined by comparing a trade's potential profit and potential loss the lower the risk/reward ratio is, the better a simple way to calculate the risk/reward ratio would be to first find the difference between the entry point of a trade and the stop loss order this is called the "risk" part of the ratio to find the "reward" we find the difference between the target profit and entry point divide the "risk" by the "reward" and we get the risk/reward ratio (r/r ratio) risk/reward ratio = (entry point stop loss point)/(profit target entry point) for example, if you buy at an entry point of $25 60, then place a stop loss at $25 50 and a profit target at $25 85, the risk/reward ratio is r/r ratio = ($25 60 $25 50) / ($25 85 $25 60) = $0 10 / $0 25 = 0 4 as a rule of thumb, it is better to take trades that have lower risk/reward ratios, because profit potential outweighs the risk the risk/reward ratio doesn't need to be very low to work, though trades with ratios below 1 0 are likely to produce better results than those with a greater than 1 0 risk/reward ratio for most day traders, risk/reward ratios typically fall between 1 0 and 0 25