Risk Reward Calculator
Calculate risk-reward ratios for your trades to optimize your trading strategy. Understand the potential profit vs. risk for every trade setup and improve your trading psychology. Perfect complement to our position sizing and stop loss calculators.
⚖️ Risk Reward Calculator
Enter your trade parameters to calculate risk-reward ratio and profitability analysis
Quick Examples
Risk-Reward Analysis
Required Win Rate for Breakeven
📊 Advanced Analysis
Understanding Risk-Reward Ratios
Define Your Levels
Set your entry price, stop loss, and take profit levels based on technical analysis. These should be logical levels, not arbitrary percentages.
Calculate the Ratio
Risk = Entry - Stop Loss. Reward = Take Profit - Entry. The ratio is Reward ÷ Risk, expressed as 1:X format.
Assess Trade Quality
Generally, 1:2 or higher ratios are considered good. The higher the ratio, the lower your required win rate for profitability.
Consider Win Rate
Higher risk-reward ratios require lower win rates. Balance your strategy between achievable win rates and attractive ratios.
Risk-Reward Ratio Formula
Risk-Reward Ratio = (Take Profit - Entry Price) ÷ (Entry Price - Stop Loss) Example:
- Entry Price: $50.00
- Stop Loss: $48.00
- Take Profit: $56.00
- Risk: $50.00 - $48.00 = $2.00
- Reward: $56.00 - $50.00 = $6.00
- Ratio: $6.00 ÷ $2.00 = 1:3.0
Risk-Reward Scenarios
Poor Ratio
1:0.4Average Ratio
1:2.0Excellent Ratio
1:3.0Risk-Reward Psychology
Patience is Key
High risk-reward setups may have lower win rates but are more profitable long-term. Avoid the temptation to exit early just to secure small wins.
Quality over Quantity
Focus on fewer, high-quality setups with good risk-reward ratios rather than taking many low-ratio trades that require high win rates.
Stick to Your Plan
Pre-define your entry, stop loss, and take profit levels. Emotional decisions during trades often lead to poor risk-reward management.
Track Your Stats
Keep a trading journal to track your actual risk-reward ratios vs. planned ratios. This helps identify improvement areas.
Balance is Important
While high ratios are attractive, ensure your targets are realistic. Overly ambitious targets may never be reached.
Adapt Your Strategy
Different market conditions may require different risk-reward approaches. Trending markets allow for higher ratios than ranging markets.
Risk-Reward FAQ
What is a good risk-reward ratio?
Generally, a risk-reward ratio of 1:2 or higher is considered good. This means for every $1 you risk, you aim to make $2 or more. Professional traders often target 1:3 or higher ratios.
Can I be profitable with a 1:1 risk-reward ratio?
Yes, but you need a win rate above 50% after accounting for fees and slippage. Most successful traders prefer higher ratios (1:2+) as they're more forgiving of losses.
How do I improve my risk-reward ratios?
Focus on better trade setups, tighter stop losses based on technical levels, and more ambitious but realistic profit targets. Patience in waiting for quality setups is crucial.
Should I adjust my risk-reward ratio for different markets?
Yes. Volatile markets like crypto may offer higher ratios but with lower win rates. Stable markets like forex majors typically offer lower ratios but higher win rates.
What if my trade moves in my favor but doesn't hit my target?
Consider using trailing stops or partial profit-taking strategies. However, consistently exiting early without hitting targets will reduce your actual risk-reward ratios.
How does position sizing relate to risk-reward ratios?
Position sizing determines how much you risk per trade, while risk-reward ratios determine the potential return on that risk. Both are crucial for overall profitability.