Share Predictions
Risk reward ratio calculator
How much a trade stands to make for every dollar it risks.
Risk-reward ratio
1:3.00
You risk $1 to make $3.00.
- Risk
- 5.00%
- Reward
- 15.00%
- Money at risk
- $500.00
- Money to gain
- $1,500.00
- Break-even win rate
- 25.00%
- Expected value
- +$500.00
How the risk-reward ratio works
It compares what you lose if the stop is hit with what you gain if the target is hit. The higher the ratio, the fewer trades you need to win to break even. With several targets, each counts by the share of the position it closes.
Long: Ratio = (Take profit - Entry) / (Entry - Stop loss)
Short: Ratio = (Entry - Take profit) / (Stop loss - Entry)
Break-even win rate = 1 / (1 + Ratio)
An example
Buy at $100 with a stop at $95 and a take profit at $115. You risk $5 a share to make $15: $15 / $5 = 3, a ratio of 1:3. You break even by winning 1 / (1 + 3) = 25% of such trades. On 100 shares that is $500 at risk for $1,500, and at a 50% win rate the expected value is $500 a trade.
Questions
What is a good risk-reward ratio for day trading?
Many day traders look for at least 1:2, risking $1 to make $2. At 1:2 you break even by winning about 33% of trades. A strategy with a higher win rate can work with a lower ratio.
How do you calculate risk-reward ratio for stocks?
For a long trade, divide the distance from entry to take profit by the distance from entry to stop loss. Buying at $100 with a stop at $95 and a take profit at $115 gives $15 / $5 = 3, a ratio of 1:3.
What is the 1:3 risk-reward rule?
It means aiming to make three times what you risk. If your stop is $10 from the entry, your take profit is $30 from it. You then break even by winning 25% of trades.
Can you be profitable with a low win rate?
Yes, if the winners are large enough. At 1:3 you break even by winning 25% of trades, and at 1:5 about 17%, before fees.
What is expected value in trading?
It is the average profit or loss per trade over many trades: (Win rate × Average win) - (Loss rate × Average loss). With a 40% win rate, a $300 average win and a $100 average loss: $120 - $60 = +$60 a trade.
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For education only, not financial advice. Results depend on the numbers you enter.