Risk/Reward Ratio Calculator

Risk-reward ratio (RRR) measures how much potential profit you stand to gain for every dollar you are willing to risk on a trade. It is the foundation of professional position management and directly determines the minimum win rate you need to be profitable.

Core formula: Risk-Reward Ratio = Potential Profit ÷ Potential Loss

Where:

• Potential Profit = Entry Price − Take-Profit Price (for short) OR Take-Profit Price − Entry Price (for long)
• Potential Loss = Entry Price − Stop-Loss Price (for long) OR Stop-Loss Price − Entry Price (for short)

Break-even win rate formula: Minimum Win Rate = 1 ÷ (1 + RRR)

This tells you the minimum percentage of trades you must win to break even, assuming all wins are the same size and all losses are the same size.

Expected Value (EV) per trade: EV = (Win Rate × Avg Win) − (Loss Rate × Avg Loss) A positive EV means the strategy is profitable in the long run.

What each variable means:

• Entry price: the price at which you open the trade
• Stop-loss: the price at which you exit with a loss; a non-negotiable safety level based on technical analysis
• Take-profit: the target price where you close the trade for a gain
• RRR: expressed as 1:X (e.g., 1:2 means risk $1 to make $2)

Reference: minimum win rates by RRR

• 1:1 RRR: need 50% win rate to break even
• 1:2 RRR: need 33% win rate to break even
• 1:3 RRR: need 25% win rate to break even
• 1:4 RRR: need 20% win rate to break even

Worked example: Stock entry: $100.00 Stop-loss: $96.00 (risk = $4.00) Take-profit: $112.00 (reward = $12.00)

RRR = $12 ÷ $4 = 1:3 Minimum win rate = 1 ÷ (1 + 3) = 25%

With a 40% win rate and this setup: EV = (0.40 × $12) − (0.60 × $4) = $4.80 − $2.40 = +$2.40 per trade, per share

Fill in your win rate and the calculator works this out for your own levels. Leave it blank and you still get the break-even rate, which is the more important of the two: it tells you what you have to beat, and it does not require you to estimate anything.

One thing worth checking before you trust any of it. The stop and the target have to sit on opposite sides of the entry. A long trade with both levels below the entry is not a wide-target long, it is a typo, and a ratio calculated from it looks perfectly healthy. The calculator flags that arrangement rather than scoring it.

A consistently positive expected value, maintained over many trades, is what separates professional traders from gamblers. It is also the reason a 1:3 setup with a 30% hit rate beats a 1:1 setup with a 45% one, even though the second feels far better to trade.