Risk/Reward Calculator

What is a Risk/Reward Ratio?

The risk/reward ratio (R:R) compares the potential loss of a trade (risk) to the potential gain (reward). It is calculated by dividing the distance from your entry to your take profit by the distance from your entry to your stop loss. For example, a 1:2 ratio means your potential profit is twice your potential loss.

Why Does It Matter?

The R:R ratio directly determines the minimum win rate you need to be profitable. With a 1:1 ratio, you need to win more than 50% of your trades. With a 1:2 ratio, you only need to win more than 33.3% of the time. Higher reward-to-risk ratios allow you to be profitable even with a lower win rate, which gives your trading strategy more room for error.

Common R:R Guidelines

• 1:1Minimum acceptable ratio. Requires over 50% win rate. Suitable for high-probability setups.
• 1:2Widely recommended. Requires only 33.3% win rate. Good balance of opportunity and risk.
• 1:3Excellent ratio. Requires only 25% win rate. Common target for swing traders.

Required Win Rate Formula

The break-even win rate is calculated as:

This formula tells you the minimum percentage of trades you must win to avoid losing money over time, assuming consistent position sizing. Any win rate above this threshold means your strategy is expected to be profitable in the long run.

Tips for Using This Calculator

• Set your stop loss first. Determine your invalidation level based on market structure, then see if the resulting R:R makes the trade worthwhile.
• Be realistic with targets. A 1:10 ratio looks great on paper, but if the price rarely reaches your take profit, your actual win rate will suffer.
• Combine with position sizing. Use this calculator alongside a position size calculator to manage both your ratio and your dollar risk per trade.