Mycalculating.com

Try Our AI Tool

Back to Finance

Risk/Reward Ratio Calculator

Calculate risk/reward ratio from entry price, stop loss, and target price to assess trade attractiveness.

Risk/Reward Ratio Calculator

Calculate risk/reward ratio from entry price, stop loss, and target price to assess trade attractiveness.

Related Calculators

Trading and risk management

Position Sizing

Risk-based sizing.

Kelly Criterion

Optimal betting size.

Expected Shortfall

Tail risk assessment.

Value at Risk

Risk threshold.

Guide

Evaluating trades using risk/reward ratio

Risk/Reward Ratio = Potential Reward / Potential Risk. Higher ratios (e.g., 2:1 or 3:1) are generally more attractive.
Risk = |Entry Price - Stop Loss Price|. Reward = |Target Price - Entry Price|. Calculate based on trade direction (long/short).
A ratio ≥2:1 is generally favorable for systematic trading. Ratios <1:1 require very high win rates to be profitable.
Set realistic targets based on technical levels (resistance/support) or fundamental analysis, not arbitrary price points.
Consider win rate alongside risk/reward. A 2:1 ratio with 40% win rate can be profitable, while 1:1 ratio requires >50% win rate.

Frequently Asked Questions

Risk/reward ratio, trade evaluation, and profit targets

What is risk/reward ratio?

Risk/reward ratio compares potential profit (reward) to potential loss (risk) for a trade, helping evaluate trade attractiveness and set profit targets.

How is risk/reward ratio calculated?

Ratio = |Target Price - Entry Price| / |Entry Price - Stop Loss Price|. For long positions, target > entry and stop < entry. For short, reverse.

What is a good risk/reward ratio?

Ratios ≥2:1 are generally favorable. Ratios ≥3:1 are excellent. Ratios <1:1 require very high win rates and are generally unfavorable.

Does a higher ratio always mean a better trade?

Not necessarily. Consider win probability, trade setup quality, and market conditions. A 3:1 ratio with 20% win rate may be worse than 2:1 with 50% win rate.

How do I set realistic profit targets?

Base targets on technical levels (resistance, Fibonacci extensions), fundamental targets, or statistical measures (ATR multiples). Avoid arbitrary price points.

What if my ratio is less than 1:1?

Consider adjusting target (higher for long), tightening stop loss, or skipping the trade. Ratios <1:1 require very high win rates to be profitable long-term.

How does win rate relate to risk/reward?

Breakeven win rate = 1 / (1 + Risk/Reward Ratio). For 2:1 ratio, you need 33% win rate to break even. Higher ratios allow lower win rates.

Should I use the same ratio for all trades?

Not necessarily. Adjust based on trade setup, market conditions, and volatility. Some strategies work better with different ratios, but consistency helps manage expectations.

What about partial profits?

You can take partial profits at different targets (e.g., 50% at 2:1, 50% at 3:1), improving overall risk/reward while securing some gains.

How do I improve risk/reward ratio?

Improve entry timing (better entries), set tighter stops (based on support/resistance), or set more ambitious targets (based on technical or fundamental analysis).

Embed This Calculator

Add this calculator to your website or blog using the embed code below:

<div style="max-width: 600px; margin: 0 auto;">
  <iframe 
    src="https://mycalculating.com/category/finance/risk-reward-ratio-calculator?embed=true" 
    width="100%" 
    height="600" 
    style="border:1px solid #ccc; border-radius:8px;" 
    loading="lazy" 
    title="Risk Reward Ratio Calculator Calculator by MyCalculating.com"
  ></iframe>
  <p style="text-align:center; font-size:12px; margin-top:4px;">
    <a href="https://mycalculating.com/category/finance/risk-reward-ratio-calculator" target="_blank" rel="noopener">
      Use full version on <strong>MyCalculating.com</strong>
    </a>
  </p>
</div>

Open in New Tab

Risk/Reward Ratio Calculator

Calculate risk/reward ratio from entry price, stop loss, and target price to assess trade attractiveness.

How to use Risk/Reward Ratio Calculator

Step-by-step guide to using the Risk/Reward Ratio Calculator:

Enter your values. Input the required values in the calculator form
Calculate. The calculator will automatically compute and display your results
Review results. Review the calculated results and any additional information provided

Frequently asked questions

How do I use the Risk/Reward Ratio Calculator?

Simply enter your values in the input fields and the calculator will automatically compute the results. The Risk/Reward Ratio Calculator is designed to be user-friendly and provide instant calculations.

Is the Risk/Reward Ratio Calculator free to use?

Yes, the Risk/Reward Ratio Calculator is completely free to use. No registration or payment is required.

Can I use this calculator on mobile devices?

Yes, the Risk/Reward Ratio Calculator is fully responsive and works perfectly on mobile phones, tablets, and desktop computers.

Are the results from Risk/Reward Ratio Calculator accurate?

Yes, our calculators use standard formulas and are regularly tested for accuracy. However, results should be used for informational purposes and not as a substitute for professional advice.