TRADE ANALYSIS
Risk/Reward Calculator
Every setup is a bet with a price. Enter your entry, stop, and target to see the R:R ratio — and the win rate you'd need for the trade to break even.
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RISK / REWARD CALCULATOR
LiveRISK : REWARD
1 : 3
3R if the target fills
BREAKEVEN WIN RATE
25%
win rate needed to break even
THE MATH
A chart pattern, priced as a bet
Risk/reward compares what you stand to lose at the stop against what you stand to make at the target — and tells you the hit rate that payout structure demands.
R:R = |target − entry| ÷ |entry − stop| · breakeven win rate = 1 ÷ (1 + R:R)A 1:3 trade only needs to win 25% of the time to break even; a 1:0.5 trade needs 67%. Most losing strategies aren’t bad at picking direction — they’re taking payouts that their real win rate can’t support.
The breakeven win rate is the number to memorize. If your journal says a setup wins 45% of the time, any version of it needing more than 45% is negative expectancy before slippage and fees. Checking that one line before entry filters out most bad trades for free.
WORKED EXAMPLE
A 1:3 setup at $142.50
You want to buy at $142.50 with a stop at $141.00 and a target at $147.00.
Risk is $1.50 per share (142.50 − 141.00); reward is $4.50 (147.00 − 142.50). That’s an R:R of 1:3, and the breakeven win rate is 1 ÷ (1 + 3) = 25%. Win this trade just three times in ten and you’re profitable: three wins of 3R (+9R) against seven losses of 1R (−7R) nets +2R. Now shrink the target to $143.25 — the same entry and stop become a 1:0.5 trade that must win 67% of the time just to tread water. Same chart, same direction, wildly different bet.
This is why the ratio only means something next to a win rate. A 1:5 lottery-ticket setup that hits 10% of the time loses money; a 1:1 setup that hits 60% prints. The pairing to avoid is the common one: average payouts with below-average hit rates.
IN PRACTICE
Use it as a filter, not a target
R:R is measured at planning time — the market decides what you actually collect.
Place the stop and target where the chart says they belong — the stop past the invalidation level, the target at a realistic objective like prior structure or a measured move — then read the ratio. Forcing a “minimum 1:3” by stretching targets or choking stops produces fantasy ratios that never fill. If the honest levels don’t clear the breakeven win rate your journal supports, the correct trade size is zero. Pair this with the position size calculator once a setup passes.
FAQ
What is a good risk/reward ratio?＋
There's no universally good number — only good pairings of ratio and win rate. Trend-following setups often run 1:2 to 1:4 with sub-50% win rates; mean-reversion setups might be 1:1 with 60%+ win rates. Both work. What never works is a ratio whose breakeven win rate sits above what you actually achieve.
Is a higher R:R always better?＋
No. Farther targets are hit less often, so raising the ratio usually lowers the win rate at the same time. Chasing 1:10 setups typically means long losing streaks and targets that rarely fill. Optimize expectancy — (win rate × average win) minus (loss rate × average loss) — not the ratio alone.
Where does the breakeven win rate formula come from?＋
Set expectancy to zero: p × R − (1 − p) × 1 = 0, where R is the reward-to-risk ratio and each loss costs 1R. Solving for p gives p = 1 ÷ (1 + R). A 1:2 trade breaks even at 33.3%, a 1:3 at 25%, a 1:1 at 50%.
Should fees and slippage be included?＋
For precision, yes — they raise the real breakeven. Slippage widens your effective risk (worse fills on entries and stops) and fees shave every win. A practical shortcut: require a few points of cushion above the calculated breakeven win rate rather than trading right at it.
Does this work for short trades?＋
Yes. The calculator uses absolute distances, so a short with entry $142.50, stop $144.00, and target $138.00 computes the same way — it also warns you if your target sits on the same side of entry as your stop.
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