Whether you’re day trading or swing trading, there are a few fundamental concepts about risk that you should understand. These form the basis of your understanding of the market and give you a foundation to guide your trading activities and investment decisions. Otherwise, you won’t be able to protect and grow your trading account.

We’ve already discussed risk management, position sizing, and setting a stop-loss. However, if you’re actively trading, there’s something crucially important to understand. How much risk are you taking in relation to the potential reward? How does your potential upside compare to your potential downside? In other words, what is your risk/reward ratio?