Risk / Reward Calculator
Evaluate any trade's risk vs reward ratio before entering a position.
Trade Setup
✅ Good Trade Setup
Risk/Reward favors this trade
Trade Analysis
Risk / Reward Ratio
1 : 2.14
Potential Profit
$150.00
Potential Loss
$70.00
Expected Value
$40.00
Break-even Win Rate
31.8%
Price Levels
What is Risk/Reward Ratio?
The risk/reward ratio (R:R) measures how much potential profit you stand to gain for every dollar you risk on a trade. A ratio of 1:2 means you risk $1 to potentially make $2. A ratio of 1:3 means you risk $1 to potentially make $3.
Most professional traders will not enter a trade unless the risk/reward ratio is at least 1:2. This means even if they only win half their trades, they will still be profitable overall — because each win is twice as large as each loss.
The risk/reward ratio is calculated before entering a trade by setting three price levels: your entry price, your target price (where you take profit), and your stop loss price (where you exit if the trade goes against you).
Risk/Reward Formula
R:R = (Target Price − Entry Price) / (Entry Price − Stop Loss)
Worked Example
Entry: $100 | Target: $115 | Stop Loss: $93
Reward = $115 − $100 = $15 | Risk = $100 − $93 = $7
R:R Ratio = $15 / $7 = 1 : 2.14 — a good trade setup ✓
Poor Setup Example
Entry: $100 | Target: $104 | Stop Loss: $95
Reward = $4 | Risk = $5
R:R Ratio = $4 / $5 = 1 : 0.8 — you need an 80%+ win rate just to break even ✗
Expected Value — The Most Important Metric
Expected Value (EV) combines your risk/reward ratio with your win rate to tell you whether a trading strategy is profitable in the long run. A positive EV means the strategy makes money over many trades. A negative EV means it loses money — no matter how good any individual trade feels.
EV = (Win Rate × Profit) − (Loss Rate × Loss)
| Win Rate | R:R 1:1 | R:R 1:2 | R:R 1:3 |
|---|---|---|---|
| 30% | -$40 | -$10 | +$20 |
| 40% | -$20 | +$20 | +$60 |
| 50% | $0 | +$50 | +$100 |
| 60% | +$20 | +$80 | +$140 |
EV per 100 trades with $100 profit/loss per trade. Shows why high R:R ratios let you profit even with low win rates.
How Professional Traders Use Risk/Reward
Minimum 1:2 ratio rule
Most professional traders will not take a trade unless the reward is at least 2× the risk. This means they can be wrong 60% of the time and still be profitable over hundreds of trades.
Never move your stop loss down
The discipline to honor your stop loss is more important than the ratio itself. Moving stops further away as a trade goes against you converts a calculated risk into an undefined one.
Position sizing from risk
Professional traders determine position size by first deciding how much capital to risk (typically 1-2% of account), then calculating how many units they can buy given the distance to the stop loss.
Track your actual win rate
The calculator lets you input your historical win rate to calculate real expected value. If you do not know your win rate, track 50+ trades and calculate it — then use it to filter trade setups objectively.
Frequently Asked Questions
❓ What is a good risk/reward ratio?
A minimum of 1:2 is the widely accepted standard — you risk $1 to make $2. Ratios above 1:3 are excellent. Many swing traders target 1:3 to 1:5. Day traders often accept 1:2 due to tighter timeframes. Never take a trade with a ratio below 1:1 unless your win rate is exceptionally high (above 60%).
❓ How do I set a proper stop loss?
A stop loss should be placed at a technically meaningful level — below a support zone, below a recent swing low, or beyond a key moving average — not at an arbitrary dollar amount. Placing stops at meaningful levels prevents being stopped out by normal price fluctuation while still protecting against genuine trend reversals.
❓ Can I have a good R:R ratio but still lose money?
Yes — if your win rate is too low. A 1:3 ratio with a 20% win rate still produces negative expected value. This is why both metrics matter together. The expected value calculation in this tool combines both to tell you the true long-run profitability of a setup.
❓ What is the break-even win rate?
The break-even win rate is the minimum percentage of trades you need to win to avoid losing money at a given R:R ratio. For a 1:2 ratio, the break-even is 33.3% — if you win more than 1 in 3 trades, you are profitable. For a 1:1 ratio, you need to win exactly 50% to break even.
❓ Does risk/reward work for long-term investing?
The concept applies to investing too — it is just called asymmetric upside. Value investors like Warren Buffett look for investments where the downside is limited but the upside is large. The difference is that investors use fundamental analysis to set price targets, while traders use technical analysis.