Risk/Reward Calculator

The risk/reward ratio (often written as R:R or RRR) is one of the most fundamental metrics in trading. It compares the amount of money you stand to lose on a trade (the risk) against the amount you stand to gain (the reward). Traders use the risk/reward ratio to evaluate whether a trade setup is worth taking before they commit any capital.

For example, if you buy a stock at $100 with a stop loss at $95 and a target at $115, your risk is $5 per share and your reward is $15 per share. That gives you a risk/reward ratio of 1:3 — for every dollar you risk, you expect to make three dollars if the trade reaches your target.

Risk/reward ratio is not a guarantee of profit. It is a planning tool that helps you make disciplined decisions. Combined with your historical win rate, it tells you whether your trading strategy has a positive expected value over many trades. Professional traders rarely enter a position without first calculating the R:R and confirming that it meets their minimum threshold.

The concept applies to every market and every timeframe — day trading stocks, swing trading forex, options strategies, and long-term investing all benefit from risk/reward analysis. The calculator above lets you plug in any trade setup and instantly see the ratio, dollar amounts, and the minimum win rate you need to be profitable.

The formula for risk/reward ratio is straightforward:

Long trade example: You buy AAPL at $180 with a stop loss at $175 and a profit target at $195. Risk = $180 - $175 = $5. Reward = $195 - $180 = $15. R:R = 1 : ($15 / $5) = 1:3. For every dollar risked, you expect three dollars of profit.

Short trade example: You short TSLA at $250 with a stop loss at $260 and a target at $220. Risk = $260 - $250 = $10. Reward = $250 - $220 = $30. R:R = 1 : ($30 / $10) = 1:3. The same 1:3 ratio works in both directions.

To calculate the dollar amounts, multiply risk and reward per share by your position size. If you trade 200 shares in the AAPL example above, your total risk is $5 x 200 = $1,000 and your total potential reward is $15 x 200 = $3,000. This is why the position size field in the calculator is useful — it converts abstract ratios into concrete dollar figures you can compare against your account size.

The commonly cited minimum for a favorable trade is a 1:2 risk/reward ratio. At 1:2, you only need to win 33.3% of your trades to break even. Most professional traders aim for at least 1:2, and many prefer 1:3 or higher for day trades.

However, "good" depends on context. A scalping strategy might accept 1:1 setups if the win rate is consistently above 55%. A swing trader holding positions for days might demand 1:3 or 1:4 because holding overnight adds risk. An options seller might have an inverse profile — high win rate with a low R:R.

The real question is not "what R:R ratio should I target?" but "does my R:R combined with my win rate produce a positive expected value?" Expected value (EV) is calculated as:

If EV is positive, your system makes money over time. A 1:3 R:R with a 30% win rate gives: EV = (0.30 x $3) - (0.70 x $1) = $0.90 - $0.70 = $0.20 per dollar risked. That is a profitable system. A 1:1 R:R with a 45% win rate gives: EV = (0.45 x $1) - (0.55 x $1) = -$0.10 per dollar risked — a losing system despite winning almost half the time.

As a rule of thumb: never take trades below 1:1.5 unless you have strong statistical evidence that your win rate compensates. The best traders focus on setups where the chart structure naturally provides at least a 1:2 ratio before they even consider entry.

Risk/reward ratio and win rate are inversely related in practice. The higher the R:R you demand, the fewer trades will reach your target — lowering your win rate. The table below shows the breakeven win rate for common R:R ratios. Any win rate above the breakeven means the system is profitable.

Notice how a 1:3 ratio only requires a 25% win rate to break even. This is why trend-following strategies — which often have win rates around 30-40% — can still be extremely profitable. They lose more often than they win, but their winners are significantly larger than their losers.

Conversely, a scalper trading at 1:1 needs to win more than 50% of the time just to cover commissions and break even. This is achievable with tight execution and a statistical edge, but leaves very little margin for error.

The breakeven win rate formula is simple: Breakeven Win Rate = Risk / (Risk + Reward). Our calculator computes this automatically for any setup you enter. Use it to validate that your trade thesis can realistically achieve the required win rate given your strategy and market conditions.

Tradewink integrates risk/reward analysis directly into its automated signal pipeline. Every trade candidate is evaluated for its R:R ratio before it reaches your dashboard or triggers an alert. Signals that fail to meet the minimum R:R threshold (configurable per user, default 1:2) are automatically filtered out.

The system calculates stop loss and target levels using ATR (Average True Range) multiplied by configurable factors. This ensures that stops and targets are based on actual market volatility rather than arbitrary round numbers. For volatile stocks, stops are wider; for quiet stocks, stops are tighter — but the R:R ratio is maintained.

Position sizing in Tradewink is also risk/reward-aware. The system uses the lesser of three sizing methods: fixed percentage of account risk, ATR-based distance, and half-Kelly criterion. This triple constraint ensures that no single trade can cause outsized damage, even if the stop loss is hit.

Once in a trade, Tradewink continuously monitors the risk/reward profile. As price moves in your favor, trailing stops adjust to lock in gains while maintaining a favorable ratio. If market conditions change (regime shift detected), the system can tighten exits or close positions early to protect capital.