#RiskRewardRatio he risk-reward ratio is a financial metric that compares the potential risk of an investment to its expected return. It's also known as the risk-return ratio. 

How to calculate 

Calculate the potential loss of the investment

Calculate the potential gain of the investment

Divide the potential loss by the potential gain

What it tells you

The risk-reward ratio helps investors decide if the potential rewards justify the risks. A higher ratio means a better trading opportunity. 

Example

If you risk $1,000 to potentially earn $3,000, the ratio is 1:3 

A ratio of 1:1 means that you're risking as much money if you're wrong about a trade as you stand to gain if you're right 

Using the ratio

Use the ratio to compare potential trades and refine your overall trading strategy 

Compare the ratio to your risk tolerance and target ratio 

Adjust stop losses and take profit levels to achieve an optimal risk reward ratio for each trade 

Limitations

The risk-reward ratio doesn't account for market volatility or external factors that may impact investment outcomes.