When Should You Use a Risk/Reward Calculator?
Use this calculator before entering any trade to evaluate whether the potential reward justifies the risk:
• Screening trade setups for quality
• Comparing multiple trade ideas
• Building discipline to skip low-quality trades
• Understanding the minimum win rate your strategy needs
How It Works
Enter Your Levels
Input your entry price, stop-loss, and profit target.
Calculate the Ratio
Risk = |entry - stop|. Reward = |target - entry|. Divide risk by reward and express as 1:X (e.g., $5 risk / $10 reward = 1:2, meaning $1 risked for every $2 potential gain).
Evaluate the Trade
A ratio of 1:2 or better means you only need to be right 33% of the time.
Example
Scenario: You want to buy AAPL at $180.00 with a stop-loss at $174.00 and a target of $195.00.
Calculation: Risk = $180.00 - $174.00 = $6.00 per share. Reward = $195.00 - $180.00 = $15.00 per share.
Result: Risk:Reward = 1:2.5. Break-even win rate = 28.6%. This is an excellent trade setup because you only need to be right less than 1 in 3 times to be profitable.
Frequently Asked Questions
Related Tools
Quick Reference Table
| R:R Ratio | Breakeven Win Rate | Classification |
|---|---|---|
| 1:1 | 50.0% | Minimum |
| 1:2 | 33.3% | Good |
| 1:3 | 25.0% | Very Good |
| 1:4 | 20.0% | Excellent |
| 1:5 | 16.7% | Outstanding |