Three-to-One Trade Gate
Take a setup only when its charted reward is at least three times its risk
- Difficulty
- Easy
- Time to result
- ~days to results
- Steps
- 4
- Confidence
- 99%
The Three-to-One Trade Gate is a simple entry decision rule. Mark the planned entry on the stock chart, then identify the price where the setup would be wrong and calculate that downside as risk per share. Mark a realistic upside target and calculate the corresponding reward per share. Divide reward by risk and proceed only when the result is at least three. A setup risking two dollars per share should therefore offer at least six dollars of plausible upside. If the chart cannot support that relationship, move to another stock or wait for price to improve. The mechanism creates selectivity and gives successful trades room to compensate for losses, while making patience an explicit outcome rather than treating every analysed stock as an obligation to trade.
Origin
Teri Ijeoma gave the three-to-one threshold as the decision rule she applies after mapping entry, downside, and upside on a chart.
Core principles
- 01Potential upside must compensate for defined downside
- 02Both risk and reward should come from charted prices
- 03A missed trade is better than an unfavourable trade
- 04Patience is a valid trading action
How to run it
- 1
Mark the entry
Choose the exact price at which the setup becomes actionable. Do not calculate the ratio from the current price unless that is genuinely the intended entry.
Pro tip Waiting for a better entry can improve the ratio without changing the company.
Watch out A vague entry produces a meaningless calculation.
- 2
Define the downside
Use the chart to identify where the trade thesis would be invalid. Subtract that exit price from the entry to determine risk per share.
Pro tip Place the stop where the setup is wrong, then adjust share quantity to fit the cash-risk limit.
Watch out Choosing an artificially tight stop merely to improve the ratio creates false precision.
- 3
Define the upside
Identify a realistic chart-based target and subtract the entry to determine reward per share. Use an observable price level rather than a hoped-for windfall.
Pro tip Look for prior areas where selling changed the stock's direction.
Watch out An implausible target makes a weak trade look acceptable.
- 4
Apply the gate
Divide potential reward by potential risk. Take the setup only if the reward is at least three times the risk; otherwise reject it or wait.
Pro tip Compare several qualified stocks and choose the cleanest acceptable setup.
Watch out Passing the ratio does not replace company selection or position sizing.
In the wild
A stock has a realistic target at $72 and a downside exit at $64. At a $68 entry, the trader would risk $4 to make $4, only one-to-one. Instead of forcing the trade, she waits. At $66, the same levels offer $6 reward against $2 risk, meeting the three-to-one gate.
→ The trader enters only when the price offers enough upside for the defined downside.
Common mistakes
Inventing an optimistic target
A distant target unsupported by the chart inflates the reward and defeats the gate.
Ignoring total position risk
A favourable per-share ratio can still produce an unacceptable cash loss when the quantity is too large.
Trading below the threshold
Taking a weak setup because time was spent analysing it replaces the decision rule with sunk-cost thinking.
Is it for you?
Best for
It is best for chart-based traders comparing multiple possible entries with visible downside and upside levels.
Not ideal for
It is not ideal when no credible stop or target can be estimated from the available evidence.
From the transcript
“now i have to determine is this trade going to give me three times the risk that i'm taking on for this trade”
“if the reward is not three times the risk then that trade's not worth it”
“i'll go on to another stock or i'll just wait”
From the episode
Teri Ijeoma: Start Trading Today
Teri Ijeoma