#RiskRewardRatio

The risk-reward ratio is a crucial concept in trading and investing, helping you evaluate potential profit and loss. It's calculated by dividing potential profit by potential loss. For example, a 2:1 ratio means potential profit is twice the potential loss. This ratio informs your decision to enter or exit a trade, allowing you to manage risk and potential losses. A higher ratio indicates higher potential profit, but also higher risk. Traders often use ratios like 2:1 or 3:1, depending on their strategy and risk tolerance. By understanding the risk-reward ratio, you can make informed trading decisions and manage risk effectively