What is the risk-reward ratio?
The risk-reward ratio compares how much you could lose on a trade (the distance from entry to stop-loss) with how much you could make (the distance from entry to target). A 1:2 trade risks ₹1 to make ₹2. Combined with your win rate, it decides whether a trading strategy makes money over many trades. This calculator works for both long (buy) and short (sell) trades — it detects the direction from your target.
How to use it
- Enter your planned entry, stop-loss and target prices.
- Optionally enter the quantity to see the total rupee risk and reward.
- Read the ratio, the minimum win rate you need, and the expectancy table for different win rates.
Formulas
Ratio (R) = |Target − Entry| ÷ |Entry − Stop-loss|
Break-even win rate = 1 ÷ (1 + R)
Expectancy (in R) = Win% × R − Loss%
Example
Buy at ₹100, stop-loss at ₹95, target ₹110. Risk is ₹5 and reward is ₹10, so the trade is 1:2. You need to win just 33.3% of such trades to break even. With a 45% win rate, expectancy is 0.45 × 2 − 0.55 = +0.35R per trade — about ₹175 per trade on 100 shares over the long run.
The same maths explains why many profitable traders lose more often than they win. A trader who wins only 40% of the time but averages 1:2.5 trades earns +0.4R per trade, while someone who wins 70% of trades at 1:0.3 slowly loses money. Look at the ratio and the win rate together — never one without the other.
Using the ratio well
- Place stops at logical levels (below support, above resistance), not just to get a nicer ratio.
- Be realistic about targets — use nearby resistance or average daily range.
- Track your actual win rate in a journal, then use the expectancy table to see if your system has an edge.
- Decide the quantity with the position size calculator.
Disclaimer: Results are estimates for educational purposes only and are not financial, investment or tax advice. Please verify with your bank, broker or a SEBI-registered adviser before acting. Read the full disclaimer.