Most of us calculate RR = potential profitpotential loss
For example, if our TP gives $200 and SL lose $100 then the RR = 2 right?
However, most of the time we don't take our pseudo edge into account.
Before calculating risk to reward ratio... a trader must know what is the odds of success.
For example lets say your pseudo edge (i'm calling it pseudo for personal belief) is 30% chance.
Then if you TP gives $200 and SL lose $100, the expected value will be
Expected Value = Odds x Payout
= 0.3 x 200 = $60 which is less than potential loss of $100
This trade should be passed on that means take a hike. But if you know the odds of success to be lets say, 70% then
= 0.7 x 200 = 140, which is more than $100 that means its a good bet and your true RR is 140/100 = 1.4 pretty good.