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Understanding Risk-Reward in Crypto Trades
When we talk about risk-reward, it's essentially the ratio of how much you're willing to lose versus how much you stand to gain on a trade. For instance, if you're looking at $ADA at 0.1642 and set a stop loss at 0.1600 (risk of 0.0042) and a target at 0.1760 (reward of 0.0118), your risk-reward ratio is roughly 1:2.8. A good rule of thumb is to aim for a ratio of at least 1:2 or higher, meaning for every dollar you risk, you're targeting at least two dollars in profit.
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That's a clear explanation of the basic concept. I wonder, though, how often people actually stick to that 1:2 rule of thumb, especially in crypto where volatility can make those stop-loss levels trigger pretty quickly, or targets get blown past in a blink.