Risk/Reward Ratio Calculator

What the risk/reward ratio actually tells you

Risk/Reward is a measure of the distance from where you enter into the trade to the potential Stop and also to the potential Target. What distance is there in relation to the stop, and what distance in relation to the target? To risk two points to win four (which I've previously called a 2:1) you're giving up a 2:1 setup on whatever the market is. That single number tells you how many times you can lose and still be ahead, that's why this is important.

Traders quote ratios like 1:2 or 1:3 as if the bigger number is automatically better, but a ratio on its own says nothing about profit. A gorgeous 5:1 target the market reaches once in a blue moon loses money; a plain 1:1 you hit six times out of ten prints it. The ratio only means something sitting next to a win rate, and that pairing is what this page is built around.

The formula

reward : risk = |target − entry| ÷ |entry − stop|
breakeven win rate = 1 ÷ (1 + reward:risk)
expectancy (R) = win% × reward:risk − (1 − win%)

The ratio of entry to stop to target in terms of risk/reward is the same as your entry to your stop, which has no relation to your target. So if you enter at 100 with a stop at 98 and a target at 104 then you are risking 2 to make 4 - or a 2:1 reward-to-risk. Next comes the number that really matters, the break even win rate: 1 ÷ (1+2)= 33.3%. As long as you have this number and the set up for profit prior to expenses, then it will be profitable prior to costs; if not then it will bleed regardless of how good each individual trade appears on the chart.

Your true win rate matches up with your expectancy. Since your real win rate at this 2:1 setup is 45%, then the expectancy can be calculated as follows: .45(2) -.55 = +0.35R per trade; i.e., if you are risking one unit, you will take in about one-third of that on average over many trades. The compound interest like factor of that number (not just individual wins), is what causes accounts to grow. A great ratio may look good on paper, but if the win rate is below the break-even point, there will be negative expectancy and mathematically lose money over time.

What counts as a good ratio

There is no single good ratio, only a ratio that fits how often your strategy actually wins. Every ratio comes with a win rate you have to beat:

Read it as a trade-off, not a target. A higher ratio buys you a lower required win rate, which is why trend and breakout traders happily take a run of small losses waiting for the occasional 3:1 or 4:1 winner. Mean-reversion and scalping strategies win far more often but at 1:1 or worse, and they clear their higher breakeven because the hit rate is there to back it up. The honest question is never "what is the best risk/reward ratio" in the abstract; it is whether your own record beats the breakeven your ratio implies.

The same maths on any market

The arithmetic does not change with the asset, only what a point of distance is worth. On a stock, entry $50.00, stop $49.00, target $53.00 is risking $1 to make $3, a 3:1 with a 25% breakeven. In forex, entry 1.1000, stop 1.0970, target 1.1060 is 30 pips of risk against 60 of reward, a clean 2:1. On a crypto perp or a futures contract the ratio reads the same way; leverage changes the cash at stake and the liquidation maths, not the reward-to-risk itself. Work the ratio from price levels first, then hand the risk in points to the position size calculator to turn it into a position size.

You do not need TradingView or a spreadsheet for this

You may create the ratio of this trading view chart using the long position tool or by building the formula for excel in just one min; Both are good ways. The most commonly overlooked part of creating a ratio (and also the most important) is finding the breakeven win rate and expectancy. Therefore, after you have created a 3:1 ratio box, you will find it difficult to determine if your strategy has met the required 25% threshold. This application works solely within your web browser, creates a link that allows you to easily share your setups, and provides the three essential pieces of information to make a decision about using a ratio, including the ratio itself, the breakeven point, and the per trade expectancy.

Where it fits with your other tools

A ratio is a per-trade number; what a positive edge does over hundreds of trades, and how badly variance can bite before it pays off, is what the risk of ruin simulator shows, since the same edge sized too aggressively can still blow up first. Once the risk is set in price terms, the position size calculator turns your stop distance into the exact size for a fixed percentage of account, and the profit & loss calculator shows what the target and stop are each worth in cash.

The honest limits

The ratio and the breakeven win rate are exact; they are fixed by where you put your stop and target. Everything downstream leans on inputs only you can judge. The win rate is your estimate, and it is only as honest as your trade record, a hopeful number in makes an encouraging number out. The maths also assumes every loss is a clean −1R and every win a clean +R, when real fills slip, stops gap, and you sometimes take partial profit, all of which blur the edges. And it ignores spread and commission, which lift the true breakeven a little above the figure shown, so leave yourself a margin rather than trading a setup that only just clears it.