Risk-Reward Calculator

What Is Risk-Reward Ratio?

The risk-reward ratio (R:R) compares how much you stand to lose on a trade versus how much you stand to gain. It is one of the most important metrics in trading because it tells you whether a trade setup is worth taking — before you risk any money.

A ratio of 1:2 means for every ₹1 you risk, you expect to make ₹2. A ratio of 1:3 means ₹1 risk for ₹3 potential reward. The higher the reward relative to the risk, the fewer winning trades you need to be profitable overall.

How the Calculator Works

The calculator takes three price levels from your trade plan — entry, stop loss, and target — and computes the risk (distance to stop loss) and reward (distance to target). From these, it derives the R:R ratio, breakeven win rate, and expected value.

Example Calculation

How to Use This Calculator

1. Select trade direction — Long if you are buying (expecting price to go up) or Short if you are selling (expecting price to go down).
2. Enter your entry price — the price at which you plan to enter the trade.
3. Enter your stop loss — based on your chart analysis. This should be at a level where your trade idea is invalidated (below support for longs, above resistance for shorts). Never set a stop loss based on a random number or a fixed percentage — it should be a technical level.
4. Enter your target price — the price level where you plan to book profit. This should also be based on chart levels (next resistance for longs, next support for shorts).
5. Click Calculate — the calculator shows your R:R ratio, breakeven win rate, expected value, and a visual risk-reward bar.

What Is a Good Risk-Reward Ratio?

There is no single "correct" R:R — it depends on your trading style and win rate. Here is a general guideline:

• 1:1 or lower — you need to win more than 50% of your trades just to break even. Acceptable only for scalpers with very high win rates.
• 1:1.5 — breakeven win rate is 40%. A reasonable minimum for most trading styles.
• 1:2 — breakeven win rate is 33%. A solid benchmark for swing traders. You can be wrong on 2 out of 3 trades and still not lose money.
• 1:3 or higher — breakeven win rate is 25% or lower. Excellent R:R, but the target is farther away so the trade may take longer to play out or may not reach the target as often.

The key insight: a higher R:R compensates for a lower win rate. You do not need to be right on every trade — you need your winning trades to be significantly larger than your losing trades.

What Is Expected Value?

Expected value (EV) tells you how much you can expect to gain or lose per trade on average, given a specific win rate. The calculator shows EV assuming a 50% win rate over 100 trades.

Why Risk-Reward Matters

• Filters bad setups — if the R:R is below 1:1, the trade is not worth the risk. Checking R:R before entering prevents impulsive trades.
• Keeps you profitable with fewer wins — a 1:3 R:R means you can lose 3 trades for every 1 winner and still break even. Most strategies do not need high win rates to make money.
• Removes emotional decision-making — when you know your R:R in advance, you set the stop loss and target based on logic, not hope or fear.
• Works with position sizing — combine R:R with the Position & Lot Size Calculator to know exactly how much you risk in rupees, not just points.
• Builds a trading edge — consistently taking trades with favourable R:R ratios is one of the simplest ways to build a long-term edge in the market.

Common Mistakes to Avoid

• Setting unrealistic targets — a 1:5 R:R looks great on paper, but if the target requires the stock to move past multiple resistance levels, it may rarely be hit. R:R must be based on actual chart levels.
• Ignoring the stop loss — calculating R:R is meaningless if you don't honour your stop loss. The entire framework relies on you exiting the trade when the stop is hit.
• Chasing R:R by tightening stops — moving your stop closer to entry to "improve" the R:R increases the chance of getting stopped out by normal price noise. The stop should be at a logical invalidation point.
• Only looking at R:R without context — R:R alone does not make a trade good. A 1:3 R:R on a trade that goes against the trend is still a bad trade. R:R is one piece of the puzzle, alongside technical analysis and market context.