#RiskRewardRatio Practical example in crypto.

Let's say Bitcoin (BTC) is currently trading at $50,000:

Entry point: $50,000

Stop Loss: $48,000 (risking $2,000)

Take Profit: $56,000 (potential profit of $6,000)

Risk-reward ratio: reduced Risk-reward ratio = (50,000 - 48,000) / (56,000 - 50,000) = 2 / 6 = 1:3

Here, the ratio indicates a willing risk of $1 for every $3 of expected profit.

Advantages of using the risk-reward ratio.

Mitigation of losses.

Investors are often swayed by emotions when trading, which often leads them to make impulsive decisions. A risk-reward ratio framework imposes discipline, which curbs losing trades during market volatility.

Enhancing profitability.

By consistently identifying trades with favorable risk-reward ratios, the likelihood of achieving profitable outcomes over time increases, leading to more substantial growth in your cryptocurrency portfolio.

Portfolio diversification.

Utilizing this ratio across various assets and different time periods allows for greater diversification and distribution of investment risk.