#RiskRewardRatio Risk-Reward Ratio is calculated by dividing the capital at risk (the potential loss if the trade goes against you) by the potential profit you expect to make if the trade goes in your favor.

Risk-Reward Ratio = (Potential Loss) / (Potential Profit)

Interpretation:

The ratio indicates how much risk you are willing to accept for each unit of potential profit.

* Ratio < 1 (for example, 0.5:1, 0.75:1): This is often considered a favorable risk-reward ratio. This means you are accepting less risk than you can potentially earn. For example, a ratio of 0.5:1 means you are accepting a risk of $1 to potentially earn $2.