#RiskRewardRatio RiskRewardRatio

The risk-reward ratio is a fundamental tool in trading and investment that compares the potential profit of a trade to its potential loss. It's calculated by dividing the amount you stand to lose (the risk) by the amount you aim to gain (the reward). For example, if you risk $100 to potentially make $300, your risk-reward ratio is 1:3 or 0.33.

A favorable risk-reward ratio is generally considered to be greater than 1:2, meaning you are aiming to make at least twice the amount you are risking. This ensures that even if you have more losing trades than winning ones, your profitable trades can still generate an overall profit.

In the context of the image you provided, for INJ (Injective), the risk zone is below $20, and the potential target is above $50. If you entered a trade near the support at $20 and aimed for $50, the potential risk would be the difference between your entry and the stop-loss level (below $20), while the potential reward would be the difference between your target ($50+) and your entry. A well-placed stop-loss is crucial for defining and limiting your risk. Similarly, the risk-reward ratios for RNDR and NEAR are implied by their respective risk zones and potential targets. Traders use these ratios to assess if the potential gains justify the risks involved in each setup.