#RiskRewardRatio How to use the risk-to-reward ratio to achieve sustainable profits in trading 📊

#RiskRewardRatio The risk-to-reward ratio (Risk/Reward Ratio) is a measure used by traders and investors to evaluate the relationship between potential risks and potential profits in a specific financial transaction. This ratio helps determine whether the trade is worth the risk or not.

How to calculate the risk-to-reward ratio:-

This ratio is calculated by dividing the distance between the entry price and the stop-loss price (risk) by the distance between the entry price and the take-profit price (reward).​

Illustrative example: If you enter a trade at a price of $100, and set the stop-loss at $95 and the take-profit at $110, then:​

1- Risk = 100 - 95 = $5.

2- Reward = 110 - 100 = $10.

3- Risk-to-reward ratio = 5 / 10 = 0.5 or 1:2.

This means you are risking one dollar to achieve a profit of two dollars.