Risk/Reward Calculator

The risk/reward ratio is one of the most fundamental concepts in trading and investing. It compares the potential loss on a trade (the risk) to the potential gain (the reward), expressed as a ratio like 1:2 or 1:3. A ratio of 1:2 means you stand to gain twice as much as you risk losing on any given position.

Traders use the risk/reward ratio to quickly evaluate whether a trade setup is worth taking. A setup with a 1:0.5 ratio — where you risk $100 to make $50 — is mathematically unfavorable unless you win an extraordinarily high percentage of the time. Conversely, a 1:3 ratio means each winning trade offsets three losing trades, giving your strategy a much larger margin for error.

Professional traders almost universally require a minimum risk/reward ratio of 1:2 before entering a position. This threshold means that even if you only win half your trades, your total profits will outpace your total losses. Many swing traders and position traders aim for 1:3 or better, allowing them to be profitable while winning fewer than 40% of their trades.

The ratio alone does not determine whether a trade is profitable in the long run — that also depends on your historical win rate. This is why the risk/reward ratio is most powerful when analyzed alongside expected value, breakeven win rate, and the Kelly Criterion, all of which this calculator computes for you simultaneously.

This risk/reward calculator requires six inputs to deliver a complete trade analysis. Understanding each input helps you get the most accurate results for your specific trading setup.

• Entry Price: The price at which you plan to buy (long trade) or sell short (short trade) the asset.
• Stop Loss Price: The price level at which your trade will automatically close if the market moves against you. This is your maximum acceptable loss per share.
• Take Profit Price: The target price where you plan to close the trade and realize your gain. Place this at a realistic level based on technical analysis or your trading strategy.
• Position Size (Shares): The total number of shares or units you plan to trade. This converts per-share figures into total dollar amounts.
• Historical Win Rate (%): Your documented percentage of winning trades over a large sample. This feeds into the expected value and Kelly Criterion calculations. If you are a new trader, start with 50% as a conservative estimate.
• Account Balance: Your total trading account size. The calculator uses this to show what percentage of your account you are risking, a critical risk management metric.

Once you enter all inputs, the calculator instantly shows your risk/reward ratio, total dollar risk and reward, account risk percentage, expected value per trade, breakeven win rate, and Kelly Criterion allocation — a complete picture of any trade's viability.

Expected value (EV) is the average profit or loss you can expect per trade over a large number of repetitions. It combines both your win rate and your risk/reward ratio into a single dollar figure. A positive expected value means your strategy is mathematically profitable over time; a negative expected value means you will lose money in the long run regardless of short-term results.

The formula used by this calculator is:

EV = (Win Rate × Total Reward) − ((1 − Win Rate) × Total Risk)

For example, if your total reward is $1,500, your total risk is $500, and your historical win rate is 50%, your expected value per trade is (0.50 × $1,500) − (0.50 × $500) = $750 − $250 = $500. This means every time you take this trade setup, you can expect to gain $500 on average.

Expected value is far more informative than the risk/reward ratio alone. A trade with a 1:5 ratio but only a 15% win rate actually has a negative expected value, while a trade with a 1:1 ratio and a 60% win rate is solidly profitable. Always evaluate both together.

Day traders and algorithmic traders in particular rely on expected value to compare strategies and screen out setups that look attractive on paper but fail the math test. Building a habit of calculating EV before every trade is one of the most impactful improvements a developing trader can make.

The breakeven win rate tells you the minimum percentage of trades you must win to avoid losing money at a given risk/reward ratio. It answers the critical question: "How often do I need to be right for this trade setup to pay off?"

The formula is: Breakeven Win Rate = 1 / (1 + RRR) × 100

At a 1:2 ratio (RRR = 2), your breakeven win rate is 1/(1+2) × 100 = 33.3%. This means you only need to win one out of every three trades to break even. At a 1:3 ratio, the breakeven win rate drops to just 25% — making it extremely forgiving for traders who accept many small losses in exchange for occasional large wins.

Compare your breakeven win rate to your historical win rate. If your historical win rate is higher than the breakeven rate, the trade has a positive expected value. The greater the gap, the more profitable the setup. Traders who consistently find setups where their breakeven rate is well below their historical win rate build durable, scalable trading systems.

The breakeven win rate is also a useful sanity check when you do not have historical data. A trade that requires you to win 80% of the time to break even is extremely demanding and should raise a red flag, regardless of how attractive the chart pattern looks.

The Kelly Criterion is a mathematical formula that calculates the optimal percentage of your trading capital to allocate to a given trade in order to maximize long-term account growth. It was originally developed by John L. Kelly Jr. at Bell Labs in 1956 and has since become a cornerstone of bankroll management in both gambling and investing.

This calculator uses the formula: K% = (Win Rate × RRR − (1 − Win Rate)) / RRR × 100

A Kelly output of 33% means that, in theory, allocating 33% of your account to this trade maximizes the geometric growth of your portfolio. However, most professional traders use a "half Kelly" or "quarter Kelly" approach, allocating 50% or 25% of the Kelly recommendation to reduce volatility and drawdown risk.

When the Kelly Criterion returns a negative value, it signals that no amount of capital should be allocated — the trade has a negative expected value and should be avoided entirely. This makes Kelly a powerful filter for weeding out bad setups before you ever risk real money.

Keep in mind that Kelly assumes your win rate and average win/loss figures are stable and accurately estimated. In practice, win rates fluctuate, so treat Kelly as an upper bound rather than a precise allocation target. Combining Kelly with a hard cap of 1–2% account risk per trade is a common and prudent approach for active traders.

Even a mathematically superior trading strategy can destroy a trading account without disciplined risk management. Understanding how to apply the outputs of a risk/reward calculator in practice separates profitable traders from those who blow up their accounts despite good setups.

The 1–2% Rule: Never risk more than 1–2% of your total account balance on any single trade. This is the single most important rule in trading. Even with a long losing streak of 10 trades in a row — which happens to every trader eventually — you will only draw down 10–20% of your account if you limit per-trade risk to 1–2%. This keeps you in the game long enough for your edge to play out.

Set stop losses before entering: Always determine your stop loss price before entering a trade, not after. Placing stops after entry leads to emotional decisions and stop losses that are too wide. Your stop should be at a technically meaningful level — below a support zone, above a resistance level, or at a specific ATR (Average True Range) distance from entry.

Scale position size to your stop distance: Once you know your stop loss and maximum dollar risk per trade, back-calculate your position size. If you risk $200 per trade and your stop is $4 away from entry, your position size is 200 / 4 = 50 shares. This keeps your dollar risk constant regardless of the stock price.

Track your actual win rate: The win rate input in this calculator is only as useful as the data behind it. Maintain a trading journal and calculate your true win rate over at least 50–100 trades before using it in expected value calculations. Estimated or hoped-for win rates lead to overconfident position sizing.