#RiskRewardRatio

### What is the Risk-Reward Ratio?

**Risk-Reward Ratio** is the ratio between potential loss and potential profit from a trade. It is calculated as:

\[

\text{Risk-Reward Ratio} = \frac{\text{Potential Loss}}{\text{Potential Profit}}

\]

### Example

If you buy a stock for $100, set a stop-loss at $90 (loss of $10) and a target price of $120 (profit of $20), your ratio will be:

\[

\text{Risk-Reward Ratio} = \frac{10}{20} = 0.5

\]

### Why is this important?

1. **Risk Management**: Helps make informed trading decisions.

2. **Profit Optimization**: Allows you to choose more favorable trades.

3. **Trading Psychology**: Reduces the influence of emotions on trading.

### Recommendations

- Aim for a ratio of 1:2 or 1:3.

- Regularly analyze your trades.

- Use in combination with other risk management methods.

### Conclusion

Understanding #RiskRewardRatio helps minimize risks and maximize profits in trading!