Risk/Reward Calculator

Before taking a trade, it helps to know how much you stand to make compared with how much you could lose. The reward to risk ratio compares the distance from your entry to your profit target with the distance from your entry to your stop loss. A ratio of 2 to 1 means the potential gain is twice the potential loss. Just as important, the ratio tells you the minimum win rate needed to break even: the better the ratio, the less often you need to be right. This calculator works for long and short trades in any market.

Calculator#

How it works#

Risk = |Entry - Stop|
Reward = |Target - Entry|
Reward to risk = Reward / Risk
Break even win rate = 1 / (1 + Reward to risk)

The break even win rate ignores costs. Commissions, spreads and slippage raise it, so the real threshold is a little higher. See Risk/Reward Ratio and Win Rate and Payoff Ratio.

Ratio and win rate table#

Why a high ratio is not enough#

A distant target produces an attractive ratio on paper but may rarely be reached. What matters is the combination of ratio and the realistic probability of hitting the target before the stop. Choose targets from market structure, such as prior highs, support and resistance or measured moves, not from a desired ratio. See Profit Targets and Support and Resistance.

The middle and near targets both work; the far target, despite its impressive ratio, loses money.

Common mistakes#

1. Moving the stop further away to make a trade fit, which raises real risk.
2. Picking targets to hit a ratio rather than from the chart.
3. Ignoring costs, which matter most on small targets. See Transaction Costs.
4. Not tracking actual results: measure your real win rate and average reward to risk in a journal. See Trading Journal.
5. Forgetting partial exits, which change the effective ratio. See Scaling Out and Partial Profits.

Pairing with position size#

The ratio tells you whether a trade is worth taking; the Position Size Calculator tells you how big it should be. Use both before every trade, and feed your journal results into the Expectancy and Profit Factor Calculator to see whether your system has an edge.

Frequently asked questions#

What is a good risk reward ratio?#

Many traders look for at least 1.5 or 2 to 1, but the right ratio depends on how often your setups reach their targets.

How do I calculate risk reward?#

Divide the distance from entry to target by the distance from entry to stop loss.

What win rate do I need with a 2 to 1 ratio?#

About 33.3% to break even before costs, since one divided by three is one third.

Next, convert forex pips into money with the Pip Value Calculator.