#RiskRewardRatio #RiskRewardRetio

The risk-reward ratio is a key concept in investing and trading that compares the potential profit of an investment to its potential loss. It’s calculated by dividing the amount of risk (the difference between the entry point and stop-loss) by the potential reward (the difference between the entry point and target price). For example, if you risk $100 to potentially gain $300, the risk-reward ratio is 1:3. A lower ratio, like 1:2 or 1:3, is generally more favorable because it means the potential reward outweighs the risk. Traders use this ratio to assess whether a trade is worth taking. Maintaining a strong risk-reward ratio helps in making disciplined decisions and improving long-term profitability, even if some trades result in losses.