#RiskRewardRatio The risk-reward ratio is a key concept in trading and investing that helps assess the potential return of a trade relative to its possible loss. It is calculated by dividing the amount of profit expected (reward) by the amount of capital at risk (risk). For example, if you're risking $50 to potentially earn $150, the risk-reward ratio is 1:3. This means for every $1 you risk, you're aiming to gain $3. A good risk-reward ratio depends on your trading style, but many traders aim for at least a 1:2 or 1:3 ratio. This ensures that even if you lose more trades than you win, you can still be profitable over time. Using a favorable risk-reward ratio helps maintain discipline, manage losses, and increase the chances of long-term success in trading. It's a fundamental part of a strong risk management strategy.