Risk/reward ratio calculator
Enter entry, stop and target to get the risk/reward ratio and the win rate you need to break even, plus how many losses in a row it takes to lose X%.
Risk/reward ratio = (target − entry) ÷ (entry − stop). Buy at $50 with a stop at $48 and a target at $56: you risk $2 to make $6, a ratio of 1 : 3. The win rate needed to break even is 1 ÷ (1 + 3) = 25%, before costs. A bigger ratio needs fewer winners, but distant targets are reached less often.
Risk/reward ratio formula
- Risk = the distance from the entry to the stop:
|entry − stop|. - Reward = the distance from the entry to the target:
|target − entry|. - Ratio = reward ÷ risk, written 1 : R. A ratio of 1 : 3 means the target is three times further from the entry than the stop. Traders also call this a 3R target, R being the risk.
The ratio is the same for a long trade (stop below, target above) and a short trade (stop above, target below). The calculator detects the direction from where the stop sits and tells you if the target is on the wrong side.
It works on prices, so it does not need the position size. Add a quantity (shares or units) and it also shows the money at risk and the money at the target.
Break-even win rate
If every trade either hits the stop (−1R) or the target (+R), the win rate that makes the total exactly zero is 1 ÷ (1 + R). Over 100 trades at 1 : 3 with 25 winners: 25 × 3R = 75R won, 75 × 1R = 75R lost.
| Risk/reward ratio | Win rate to break even (before costs) |
|---|---|
| 1 : 0.5 | 66.7% |
| 1 : 1 | 50% |
| 1 : 1.5 | 40% |
| 1 : 2 | 33.3% |
| 1 : 3 | 25% |
| 1 : 4 | 20% |
| 1 : 5 | 16.7% |
This is the floor, not a goal. Real results also pay commissions and spreads, and exits are rarely exactly at the stop or the target, so the win rate needed in practice is a little higher. A big ratio is not better by itself: the further away the target, the less often the price gets there. The ratio only means something together with how often that kind of target is actually reached, which no calculator can tell you.
Worked example
Long: buy at $50, stop at $48, target at $56, 50 shares
- Risk: $50 − $48 = $2.00 a share. Reward: $56 − $50 = $6.00 a share.
- Ratio: 6 ÷ 2 = 3, written 1 : 3.
- Break-even win rate: 1 ÷ (1 + 3) = 25%.
- With 50 shares: $100.00 at risk for $300.00 at the target.
Short: sell at $100, stop at $105, target at $90
- Risk: $105 − $100 = $5.00. Reward: $100 − $90 = $10.00.
- Ratio 1 : 2; break-even win rate 1 ÷ 3 = 33.3%.
Losing streak: 2% per trade, how many losses to be down 20%?
ln(1 − 0.20) ÷ ln(1 − 0.02) = 11.05, so 12 losses in a row (after 11 the account is down 19.9%, after 12 down 21.5%). Getting back from −20% then needs +25%.
Losing streaks: how many losses in a row before −X%
The second part of the calculator answers a different question: if you risk a fixed percentage of the current balance on each trade, how many losses in a row bring the account down by X%? Each loss is taken on a slightly smaller balance, so the formula is losses = ceil(ln(1 − X) ÷ ln(1 − risk)).
At 1% per trade it takes 11 losses in a row to be down 10%, and 69 to be down 50%. At 5% it takes only 5 losses to be down 20%. The table also shows the gain needed to get back to the start, X ÷ (1 − X): a 20% drawdown needs +25%, a 50% drawdown needs +100%.
Long losing streaks are normal even with a decent win rate. With a 40% win rate, the chance that any given run of 10 trades are all losers is 0.6^10, about 0.6%, and over hundreds of trades a streak of that length becomes likely. Sizing for the streak is the point of a small risk per trade.
What the ratio does not tell you
- It does not say whether the target is realistic. A 1 : 10 ratio on paper is worthless if the price almost never travels that far.
- It does not include costs, slippage or gaps past the stop.
- It is not a forecast. It describes the plan you have chosen before the trade, which is the part you control.
Frequently asked questions
How do you calculate the risk/reward ratio?
Divide the distance from the entry to the target by the distance from the entry to the stop. Entry $50, stop $48 (risk $2), target $56 (reward $6): 6 ÷ 2 = 3, a ratio of 1 : 3.
What is a good risk/reward ratio?
There is no ratio that is good on its own. It must be read with the win rate: 1 : 1 works with a win rate well above 50%, 1 : 3 needs only a little above 25%. Many guides use 1 : 2 as a minimum, but what matters is that the ratio and the realistic win rate together stay above break-even after costs.
What win rate do I need with a 1:2 risk/reward?
At least 1 ÷ (1 + 2) = 33.3% to break even before costs. With commissions and spreads it is a little more.
Is risk/reward written 1:3 or 3:1?
Both are used. Risk-to-reward is 1 : 3; reward-to-risk is 3 : 1. They describe the same trade. This calculator writes risk first (1 : R) and also shows the target as a multiple of the risk (3R).
How many losing trades in a row are normal?
More than most people expect. Even with a 50% win rate, 6 or 7 losses in a row are likely to happen at some point over a few hundred trades. That is why many guides keep the risk per trade at 1% to 2%.
Sources
- Stop order (glossary) (SEC, Investor.gov)
- Limit order (glossary) (SEC, Investor.gov)
- Day trading (FINRA)
- Learn and protect (CFTC)
Education only, not financial advice. The calculators do arithmetic on the numbers you type; they do not know the market and do not predict prices.