What Is Risk-Reward Ratio in Trading? 🧐

Before entering a trade, one useful question is:

"How much am I willing to risk compared with my potential target?"

That's where the **risk-reward ratio** comes in.

📉 Risk = the amount you could lose if the trade moves against you.

📈 Reward = the potential gain if the trade reaches your target.

For example, suppose $BTC is trading at $100,000.

A trader could set:

Entry: $100,000
Stop-loss: $98,000
Target: $104,000

That means the potential risk is $2,000 while the potential reward is $4,000.

The risk-reward ratio would be **1:2**.

In simple terms:

1 part potential risk
2 parts potential reward

But a higher risk-reward ratio doesn't automatically make a trade better. The probability of reaching the target, market conditions, position size, and overall strategy also matter.

Risk-reward is simply a tool that helps traders think about potential downside before entering a position.

Do you calculate risk-reward before taking a trade?


#crypto #BTC #Trading #RiskManagem