#RiskRewardRatio
### **What is Risk-Reward Ratio?**
The **Risk-Reward Ratio** compares how much you're risking on a trade to how much you expect to gain.
**Formula:**
\[
\text{Risk-Reward Ratio} = \frac{\text{Potential Loss}}{\text{Potential Gain}}
\]
---
### **Example:**
Let’s say you’re trading SOL:
- **Entry Price**: $120
- **Stop-Loss**: $110 → You’re risking $10 per SOL
- **Take-Profit**: $140 → You’re aiming to gain $20 per SOL
\[
\text{Risk-Reward Ratio} = \frac{10}{20} = 1:2
\]
This means you're risking $1 to potentially gain $2.
---
### **Why It Matters:**
A good risk-reward ratio helps you stay profitable *even if you lose more than you win*.
For example, if your RRR is 1:3:
- You can win only 3 out of 10 trades and still be in profit.
---
### **Ideal Risk-Reward Ratios:**
- **1:2 or higher** is generally a good target.
- Day traders might aim for **1:1.5 to 1:3**.
- Swing traders might go for **1:3 to 1:5**, depending on volatility.
---
### **Tips for Using RRR:**
- **Always define your stop-loss and take-profit before entering a trade.**
- **Don’t chase trades** that don’t meet your risk-reward criteria.
- Combine RRR with **win rate** to see if your strategy is profitable long-term.
---
### **Pro Tip:**
Even if your win rate is just 40%, with a 1:2 RRR, you’ll still be profitable over time:
\[
(40\% \times +2) + (60\% \times -1) = +0.2 (profit)
\]
---
**Bottom line:**
High win rates are great, but smart risk-reward ratios make sure the math works in your favor.
