#RiskRewardRatio A risk-reward ratio, also known as the risk-reward relationship (RRR), is a tool that helps evaluate the risk and potential return of an investment.

How is it calculated?

The projected return is divided by the expected loss value

The amount you are willing to risk is compared with the potential reward

What does the risk-reward ratio indicate?

If the ratio is greater than 1.0, the risk is greater than the reward

If the ratio is less than 1.0, the reward is greater than the risk

Importance

It helps traders make more informed and successful trading decisions

It is an essential component of financial management

Other factors to consider Timeframe of the operation, Overall investment strategy, Entry and exit points.

Examples

If you risk A$ 100 and expect to gain A$ 300, the risk-reward ratio is 1:3, or 0.33

If you buy one unit of cryptocurrency at US$ 100, setting a stop loss at US$ 90 and a take profit at US$ 130, the potential reward is three times greater than the risk taken.