Risk Reward Ratio Calculator

The ratio alone means nothing

Risk-reward compares the distance to your target against the distance to your stop. A 3:1 setup risks 1 to make 3. But a good ratio with a poor win rate loses money, and a poor ratio with a high win rate makes it. The two numbers are only meaningful together, which is why the useful output is the break-even win rate rather than the ratio itself.

Break-even win rate

Divide 1 by (1 plus the reward ratio). At 1:1 you need to win more than 50 percent. At 2:1, more than 33.3 percent. At 3:1, more than 25 percent. At 1:2 — risking 2 to make 1 — you need more than 66.7 percent, which is why scalping strategies with tight targets demand accuracy that most traders do not have.

Expectancy is the number that decides

Multiply the win rate by the average win, subtract the loss rate multiplied by the average loss. Positive expectancy means the strategy makes money over enough trades; negative means it loses regardless of how good any individual trade felt. A 40 percent win rate at 3:1 has strong positive expectancy and produces six losing trades in ten, which is why expectancy has to be trusted over the recent sequence.

The planned ratio is not the realised one

Targets are frequently missed while stops are frequently hit, and exiting early on a winner while holding a loser to its full stop degrades the actual ratio below the planned one. Measuring realised R multiples across closed trades — actual result divided by initial risk — is the only way to know which ratio your strategy really achieves.

High ratios need reachable targets

Setting a 5:1 target is trivial; reaching it is not. A ratio built on a target beyond the instrument's normal daily range converts into a low win rate that no arithmetic saves. The target must sit at a level the price plausibly reaches, and the ratio is a consequence of where stop and target belong rather than a number to engineer.

Sample size before conclusions

A 40 percent win rate strategy will produce runs of five or six losses routinely. Judging a system on twenty trades measures luck; thirty to fifty gives a usable signal. Abandoning a positive-expectancy method during a normal losing streak is the most common way traders convert a working strategy into a loss.

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