Risk-Reward Ratio Calculator

Calculate your risk-to-reward ratio, see expected profit across 100 trades, and find out how losing streaks affect your account.

Key Takeaways

  • •The risk-reward ratio compares potential loss to potential gain on a trade. Divide the distance from entry to take profit by the distance from entry to stop loss.
  • •At a 1:2 risk-reward ratio, you need a 33.3% win rate to break even. At 1:3, you need 25%.
  • •Risk-reward alone does not determine profitability. You need positive expectancy, which combines win rate with R:R ratio.
  • •The 1% rule (risking no more than 1% per trade) keeps your account intact through losing streaks.
  • •Calculate your risk-to-reward ratio before entering a trade, not after.

How to Calculate the Risk-to-Reward Ratio

The risk-reward ratio formula: Risk-Reward Ratio = (Take Profit Price − Entry Price) ÷ (Entry Price − Stop Loss Price). It tells you how many dollars of potential profit you get for every dollar you risk.

Say you buy shares at $50.00 with a stop loss at $48.00 and a take profit at $56.00. Your risk per share is $2.00 (entry minus stop loss). Your reward per share is $6.00 (take profit minus entry). $6.00 ÷ $2.00 = a risk-to-reward ratio of 1:3.

The same calculation works for forex pairs, crypto tokens, and options contracts. Only the price units change. Many traders replicate this formula in Excel or a spreadsheet to log setups before entering a trade. For more examples, read our complete guide to risk-to-reward ratio.

Risk-Reward and Win Rate: The Expectancy Formula

A high risk-reward ratio does not make a strategy profitable on its own. Profitability comes from expectancy, which combines your win rate and your average win size against your average loss. The expectancy formula: Expectancy = (Win Rate × Average Win) − (Loss Rate × Average Loss).

A 1:3 R:R ratio looks good on paper, but if you win 20% of your trades, your expectancy is negative. A 1:1 R:R ratio can be profitable with a win rate above 50%. The risk-reward equation without win rate context tells you nothing.

The breakeven win rate is the minimum win rate needed to avoid losing money at a given R:R ratio. The formula: Breakeven Win Rate = 1 ÷ (1 + R:R). At 1:2, you need a 33.3% win rate to break even. At 1:3, you need 25%. The expectancy matrix above shows net results across each combination of win rate and R:R ratio using your dollar risk.

Common Risk-Reward Mistakes

Unrealistic take-profit targets. If your target requires the price to push through major resistance while your stop loss is tight, the probability of hitting that target drops. You get a great ratio on paper and negative expectancy in practice.

Ignoring slippage and fees. Your realized R:R is worse than planned, more so in fast-moving markets or illiquid instruments. Account for this when you set levels.

Widening stop losses after entry. You calculated a risk-reward setup before the trade, then moved the stop to avoid getting stopped out. That decision destroys the setup. It is emotional, not strategic. How emotional trading destroys results covers this in depth.

Ignoring win rate. A 1:5 risk-reward ratio means nothing if your strategy wins 10% of the time. Traders chase high R:R setups without testing whether those setups generate enough winners. That gap between theory and execution is why most beginners lose money trading.

How to Use This Calculator in Practice

Treat this trading risk-reward ratio calculator as a pre-trade checklist. Before each entry, plug in your planned entry, stop loss, and take profit prices. If the R:R ratio comes in below 1:2, reconsider the trade or adjust your levels.

Use the drawdown section to validate position sizing. If a plausible losing streak at your current risk percentage would cause an uncomfortable drawdown, reduce your risk per trade. Place stops at logical price levels based on support and resistance levels, not round dollar amounts you picked at random.

Track each trade in a structured format. Keeping a trading journal lets you measure your real win rate and average R:R over time, then compare those numbers against the expectancy you planned for.

Before risking real money, test your setups. The tradicted stock market simulator lets you apply risk-reward setups on real historical charts without putting capital at risk. Start with paper trading to build the habit of calculating risk-to-reward on each trade. Use a position size calculator to find the exact number of shares for your risk level.

Frequently Asked Questions

Risk-Reward Ratio = (Take Profit Price − Entry Price) ÷ (Entry Price − Stop Loss Price). If you enter a stock at $50 with a stop loss at $48 and a take profit at $56, your risk is $2 and your reward is $6. That gives you a 1:3 risk-reward ratio. The same formula works for stocks, forex, crypto, and options.

Professional day traders target a minimum of 1:2, where potential profit is at least twice the potential loss. A 1:3 ratio is strong because you only need to win 25% of your trades to break even. The right ratio depends on your win rate. Use the expectancy matrix above to find the combination that fits your strategy. This applies to stocks, forex, and crypto.

Subtract your stop loss price from your entry price to get your risk. Subtract your entry price from your take profit price to get your reward. Divide reward by risk. Example: entry at $100, stop loss at $95, take profit at $115. Risk = $5, reward = $15, R:R = 1:3. This works for stocks, forex pairs, crypto, and options. Read our complete guide to risk-to-reward ratio for more examples.

It depends on your risk-reward ratio. At 1:1 R:R you need above 50% wins to profit. At 1:2 you need 33.3%. At 1:3 you need 25%. At 1:5 you need 16.7%. The expectancy matrix on this page shows how each win rate and R:R combination produces profit or loss over 100 trades. A good risk-reward ratio can make a low win rate strategy profitable.

Risk no more than 1% of your account per trade. Traders call this the 1% rule, and it applies to forex, stocks, and crypto. At 1% risk, 10 consecutive losing trades draw your account down about 9.6%. At 2% risk, that same streak costs 18.3%. The drawdown section above shows how losing streaks affect your account at each risk level. Risking too much per trade is one of the main reasons beginners blow up accounts. Learn what overtrading costs.

Expectancy measures your average profit or loss per trade. The formula: Expectancy = (Win Rate × Average Win) − (Loss Rate × Average Loss). Positive expectancy means a strategy makes money over time. Example: 40% win rate, 1:2 R:R, $100 risk per trade. (0.40 × $200) − (0.60 × $100) = $80 − $60 = $20 per trade. The expectancy matrix on this page runs this calculation for each win rate and R:R combination.

Yes. The risk-reward calculation works the same way for stocks, forex pairs, cryptocurrencies, and options. Enter your entry price, stop loss, and take profit in any currency or asset denomination. For forex, use pip values. For crypto, use the token price. For options, use the premium prices. tradicted lets you practice these risk-reward setups on real historical stock charts before risking real capital.

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Risk of Ruin Calculator

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Practice risk management in real trades

Apply what you calculated, risk-free, on tradicted.

Disclaimer: This calculator is for educational purposes only. Nothing here is financial advice. Results are based on simplified models and do not account for slippage, commissions, or market conditions. Do your own research before trading with real money.