Risk-reward ratio is the foundation of every profitable trading strategy. This calculator instantly tells you whether a trade setup is worth taking based on the potential reward relative to the risk.
What Is Risk-Reward Ratio?
The risk-reward ratio (R:R) compares how much you stand to lose versus how much you could gain on a trade. It is expressed as a ratio like 3:1, meaning for every ₹1 you risk, you could make ₹3.
R:R Ratio = (Take Profit - Entry Price) / (Entry Price - Stop Loss)
Quick Example
RELIANCE Trade Setup:
- Entry: ₹2,500
- Stop Loss: ₹2,460 (₹40 risk)
- Target: ₹2,620 (₹120 reward)
- R:R Ratio = ₹120 / ₹40 = 3:1
This means even if you lose on 2 out of every 3 trades, you still break even. With even a modest edge, this setup is profitable over time.
Why Risk-Reward Ratio Matters
Consider two traders with identical ₹5,00,000 accounts:
Trader A (1:1 R:R, 55% Win Rate):
- 100 trades, risking ₹5,000 each
- 55 wins × ₹5,000 = ₹2,75,000 profit
- 45 losses × ₹5,000 = ₹2,25,000 loss
- Net profit: ₹50,000 (10% return)
Trader B (3:1 R:R, 35% Win Rate):
- 100 trades, risking ₹5,000 each
- 35 wins × ₹15,000 = ₹5,25,000 profit
- 65 losses × ₹5,000 = ₹3,25,000 loss
- Net profit: ₹2,00,000 (40% return)
Trader B wins less often but makes 4x more money because of a superior risk-reward ratio.
The Breakeven Win Rate Formula
Every R:R ratio has a corresponding breakeven win rate — the minimum win percentage needed to avoid losing money:
Breakeven Win Rate = 1 / (1 + R:R Ratio) × 100
| R:R Ratio | Breakeven Win Rate |
|---|---|
| 1:1 | 50.0% |
| 1.5:1 | 40.0% |
| 2:1 | 33.3% |
| 3:1 | 25.0% |
| 4:1 | 20.0% |
| 5:1 | 16.7% |
The higher your R:R ratio, the fewer trades you need to win. This is why many profitable traders have win rates below 50%.
Common Risk-Reward Mistakes
1. Setting Unrealistic Targets
A 10:1 R:R looks great on paper but rarely gets hit. Your target must be at a level price is likely to reach — support/resistance zones, measured moves, or Fibonacci extensions.
2. Moving Stop Losses
Widening your stop loss after entering a trade destroys your planned R:R. If the original setup is invalidated, exit the trade.
3. Taking Profit Too Early
Closing at 1:1 when your plan was 3:1 turns a winning strategy into a losing one. Let your winners run to the target.
4. Ignoring the Breakeven Win Rate
A 1:1 R:R with a 45% win rate is a losing strategy. Always check whether your historical win rate exceeds the breakeven threshold for your R:R ratio.
Risk-Reward for Different Trading Styles
Day Trading
Typical R:R: 1.5:1 to 3:1. Tighter stops and closer targets due to intraday timeframes. Focus on high-probability setups.
Swing Trading
Typical R:R: 2:1 to 5:1. Wider stops to accommodate overnight gaps, but larger reward potential from multi-day moves.
Positional Trading
Typical R:R: 3:1 to 10:1. Widest stops and longest holding periods. The highest R:R ratios come from catching major trends.
How JournalPlus Helps
You just planned a risk-reward ratio for one trade. But here’s the real question: do you actually hit your targets?
Most traders plan 3:1 but exit at 1.5:1 — or worse, move their stop loss and flip the ratio entirely. JournalPlus tracks your planned R:R against your actual R:R for every trade, so you can see the gap between intention and execution. You’ll discover which setups consistently hit target and which ones you’re cutting short.
The calculator shows what’s possible. JournalPlus shows what’s real.
