The risk-reward ratio is a key metric in crypto trading that helps investors assess potential profit relative to possible loss. It is calculated by dividing the expected profit by the potential loss of a trade. For example, a 2:1 risk-reward ratio means an investor risks $1 to potentially gain $2. A good ratio depends on trading strategy, market conditions, and risk tolerance. Higher ratios provide better returns but may have lower success rates, while lower ratios offer more consistent wins with smaller profits. By maintaining a favorable risk-reward ratio, traders can optimize long-term profitability while managing potential downsides.
