Risk-Reward Calculator

Advanced risk-reward ratio calculator for position sizing and trade analysis. Professional-grade metrics for optimizing your trading strategy.

Trade Parameters

Trade Type

Long PositionShort Position

Entry Price ($):

Position Size (Shares):

Stop Loss ($):

Take Profit ($):

Risk-Reward Ratio

Enter parameters to see analysis

Trade Metrics

Metrics will appear here

Risk Management Tips

Aim for minimum 1:2 risk-reward ratio on all trades

Never risk more than 1-2% of account per trade

Higher R:R ratios allow lower win rates to be profitable

Always define risk before entering any position

Related Tools

Position Size Calculator

Calculate optimal position sizing

Understanding Risk-Reward Ratios

Master risk-reward analysis for better trading decisions

What is Risk-Reward?

Risk: Amount you stand to lose if trade hits stop loss.

Reward: Amount you stand to gain if trade hits take profit.

Expressed as a ratio like 1:2 (risk $1 to make $2).

Why It Matters

Profitability: Determines if you can be profitable with less than 50% win rate.

Consistency: Forces disciplined risk management on every trade.

Professional traders always define R:R before entering.

Optimal Ratios

1:2 Minimum: Should be your baseline for any trade setup.

1:3 or Better: Ideal range for most trading strategies.

Higher ratios allow more losing trades while staying profitable.

Risk-Reward Scenarios

1:1

Poor

1:1 Ratio

Need 50%+ win rate just to break even.

• Break-even: 50%
• Profit @55%: $5/trade
• Not recommended

1:2

Acceptable

1:2 Ratio

Minimum recommended ratio for trading.

• Break-even: 33.3%
• Profit @55%: $55/trade
• Baseline standard

1:3

Good

1:3 Ratio

Ideal ratio for most trading strategies.

• Break-even: 25%
• Profit @55%: $110/trade
• Professional target

1:4+

Excellent

1:4+ Ratio

Exceptional ratio with high profit potential.

• Break-even: 20%
• Profit @55%: $165/trade
• Maximum edge

Win Rate vs Risk-Reward Analysis

Understanding the relationship between win rate and profitability

The Math

Your win rate and risk-reward ratio work together to determine profitability. A higher R:R allows you to be profitable with a lower win rate.

Break-Even Formula:

Break-Even % = 1 / (1 + Risk:Reward)

• 1:1 ratio = 50% break-even
• 1:2 ratio = 33.3% break-even
• 1:3 ratio = 25% break-even
• 1:4 ratio = 20% break-even

Expected Value:

EV = (Win% × Reward) - (Loss% × Risk)

Real Examples

Here's how different combinations of win rate and R:R affect your bottom line over 100 trades risking $100 each.

Losing Strategy:

40% win rate × 1:1 R:R = -$2,000 loss

Break-Even Strategy:

50% win rate × 1:1 R:R = $0 (break-even)

Winning Strategy:

40% win rate × 1:3 R:R = +$4,000 profit

Excellent Strategy:

55% win rate × 1:3 R:R = +$11,500 profit

Frequently Asked Questions

Common questions about risk-reward ratios

Q
What is a good risk-reward ratio?

A minimum of 1:2 is recommended for most trading strategies, meaning you risk $1 to potentially make $2. Professional traders often target 1:3 or higher ratios.

Why 1:2 minimum?

With a 1:2 ratio, you only need to win 33.3% of trades to break even. This gives you a significant margin for error and allows you to be profitable even with more losses than wins.

Q
How do I calculate my risk-reward ratio?

Calculate the distance from entry to stop loss (risk) and from entry to take profit (reward), then divide reward by risk.

Example Calculation:

Entry: $100 | Stop: $95 | Target: $110

Risk: $100 - $95 = $5

Reward: $110 - $100 = $10

R:R = $10 / $5 = 1:2 ratio

Q
Should I always aim for the highest risk-reward ratio possible?

Not necessarily. There's a trade-off between risk-reward ratio and probability of success. Extremely high ratios (1:10+) typically have very low win rates.

Finding Balance:

The sweet spot is usually 1:2 to 1:4, where you can maintain a reasonable win rate while still having solid profit potential. Focus on setups with high probability AND good risk-reward, not just one or the other.

Q
How does risk-reward relate to position sizing?

Risk-reward helps determine your position size by defining your dollar risk. You should never risk more than 1-2% of your account on any single trade.

Position Sizing Example:

Account Size: $50,000

Max Risk: 1% = $500

Entry: $100 | Stop: $95 = $5 risk per share

Position Size: $500 ÷ $5 = 100 shares

Q
Can I adjust my stop loss and take profit during a trade?

You can adjust levels, but be careful not to violate your risk management rules. Moving stops away from price (increasing risk) is generally a bad practice.

Good Adjustments:

• Moving stop to break-even

• Trailing stop for profits

• Taking partial profits

Bad Adjustments:

• Moving stop away from price

• Removing stop loss entirely

• Adding to losing positions