#RiskRewardRatio

The risk-reward ratio compares the potential loss (risk) to the potential gain (reward) in a trade. To calculate it, subtract your entry price from your stop-loss (risk) and from your target price (reward), then divide reward by risk. For example, if you risk $100 to gain $300, your ratio is 1:3. A favorable ratio is typically 1:2 or higher. To assess potential risks, traders use tools like technical analysis, support/resistance levels, moving averages, ATR (Average True Range) to gauge volatility, and volume analysis to confirm trend strength. These tools help identify realistic stop-loss and target levels, improving trade decisions and aligning strategies with market conditions.