#RiskRewardRatio Risk-Reward Ratio (200 Words)

The Risk-Reward Ratio (RRR) is a fundamental concept in trading that compares the potential profit of a trade to its potential loss. It helps traders evaluate whether a trade is worth taking based on how much they stand to gain versus how much they’re willing to risk. The ratio is calculated by dividing the expected loss (risk) by the expected gain (reward).

For example, if a trader risks $100 to potentially gain $300, the risk-reward ratio is 1:3. This means for every $1 risked, the trader aims to make $3. A favorable RRR (such as 1:2 or 1:3) increases the chances of profitability even with a lower win rate.

Maintaining a good RRR helps in long-term consistency and capital preservation. For instance, with a 1:2 ratio, a trader only needs to win 34% of trades to break even. This is why professional traders often prioritize setups with a high RRR.

However, RRR alone doesn’t guarantee success—it must be used with proper risk management and strategy. A high RRR trade with a low probability of success may not be ideal. Balancing risk, reward, and probability is the key to effective trading decisions.