See the position on the chart

The chart now shows the complete long position plan. The entry is $100, the stop-loss is $95, and the take-profit is $110. Each level has its own labelled line.

The space between the $100 entry and $95 stop-loss is the risk area. Price moving through this area means the position is losing value. Reaching the stop-loss would produce the planned $5 loss per share.

The space between the entry and $110 take-profit is the reward area. Price moving through this area means the position is gaining value. Reaching the take-profit would produce the planned $10 reward per share.

Compare the distances from the entry line. The reward area covers $10, while the risk area covers $5. The reward area is therefore twice as large as the risk area. This gives the position a 1:2 risk–reward ratio. You will learn how to calculate it in the next chapter.

Before entering any position, check that every line is on the correct side of the entry and matches your complete trading plan.