#RiskRewardRatio The Risk-Reward Ratio is a key concept in investing and trading, used to assess the potential return of an investment compared to the amount of risk taken. It is calculated by dividing the expected profit (reward) by the potential loss (risk). For example, if a trader risks $100 to potentially gain $300, the risk-reward ratio is 1:3. A lower ratio means taking more risk for less reward, while a higher ratio suggests a better potential return for the risk involved. Investors often look for trades with a ratio of at least 1:2 or higher to ensure favorable outcomes over time. This strategy helps in managing losses and improving long-term profitability. Consistently applying a favorable risk-reward ratio can significantly enhance decision-making and risk management. However, it's important to combine this ratio with other tools like technical analysis and market research to make informed and successful trading or investment choices.