The target is derived, not chosen
Setting a target "where it looks reasonable" makes your risk-to-reward ratio an accident. The correct order is the reverse: fix the stop first from market structure, then multiply its distance by the ratio your strategy requires.
That is not a stylistic preference but a mathematical condition: every ratio implies a minimum win rate that must be beaten. A target chosen by intuition can put your system below breakeven without your noticing.
Price versus certainty
Order types are not a list to memorise but three questions: when do I get in?, when do I take profit?, and when do I get out at a loss? Each order type answers one of them.
This family works from one moment: gold at 2,400.00. A market order buys now; a limit order waits at 2,380 for a better price that may never come; a stop order buys at 2,420, a worse price bought with confirmation. The difference is not technical — it is an explicit trade of price against certainty.
The formula
Take profit = entry + (stop distance × required ratio)
A worked example
Entry at 2,400 with a stop at 2,380 gives a stop distance of $20. At 1:2 the target is 2,400 + (20 × 2) = 2,440; at 1:3 it is 2,460.
The second number is not automatically better: 2,460 needs a longer move, so the win rate falls, and the breakeven threshold at 1:3 is 25% against 33.3% at 1:2. Choosing between them is a decision measured against your own record — test it in the strategy viability assistant.
Common mistakes with this term
- Choosing the target by intuition then computing the ratio from it — exactly the wrong order.
- Pushing the target further out during a winning trade, turning a 1:3 plan into a round trip.
- Ignoring spread and swap when setting the target, so the net target is nearer than it looks.