#RiskRewardRatio

The Risk/Reward ratio is a crucial metric in trading that calculates the potential profit versus potential loss. It's calculated by dividing the potential loss by the potential profit. For example, if you're risking $100 to potentially make $300, the risk/reward ratio is 1:3. This means for every dollar you risk, you potentially gain three dollars.

To use it effectively ¹:

- *Set clear entry and exit points*: Determine where you'll enter a trade, take profits, and set stop-losses.

- *Calculate the ratio*: Divide potential loss by potential profit.

- *Adjust your strategy*: Aim for trades with favorable ratios, like 1:3 or higher.

This ratio helps traders manage risk and maximize gains.