Risk reward ration refers to the expected return on the stock or the fund for every unit of risk that you take on. When you trade in the markets, it is always advisable to keep a stop loss since it works like an insurance policy for your trading activity. A simple approach to risk-reward ratio is to see the profit target vis-à-vis your stop loss. For example, if you keep a stop loss of Rs.2 and a profit of Rs.2, then your risk-return trade-off is 1:1. Ideally traders should trade with a risk-return trade-off of 3:1 while intraday traders can look at 2:1. But 1:1 is bad risk-return trade-off. You are taking too much risk for too little returns.