Calculate your risk reward ratio instantly to ensure profitable trades. Essential for beginners and professional traders. No registration required.
Pro Tip: A favorable risk-reward ratio is crucial for long-term profitability. Even with a 40% win rate, you can be profitable with a 1:2 risk-reward ratio.
Breakeven Win Rate = 1 ÷ (1 + R:R Ratio)
The risk-reward ratio is the foundation of profitable trading. It tells you how much you stand to gain compared to what you're risking. Beginners who master this concept significantly improve their chances of success.
Beginner's Golden Rule: If you can't get at least a 1:1.5 risk-reward ratio with logical stop loss and take profit levels, skip the trade. Quality over quantity always wins in trading.
The risk-reward ratio compares potential profit to potential loss: R:R Ratio = (Target - Entry) ÷ (Entry - Stop). The breakeven win rate tells you the minimum success rate needed: Breakeven = 1 ÷ (1 + R:R).
Buy EUR/USD at 1.1000, Stop at 1.0950, Target at 1.1150:
Risk = 50 pips, Reward = 150 pips
Risk-Reward Ratio = 150 ÷ 50 = 1:3
Breakeven Win Rate = 1 ÷ (1 + 3) = 25%
Your profitability depends on the relationship between your risk-reward ratio and win rate. Higher R:R ratios allow for lower win rates while remaining profitable.
| R:R Ratio | Breakeven Win Rate | 10 Trades Example | Profit with 40% Win Rate |
|---|---|---|---|
| 1:1 | 50% | Need 5 wins to break even | -20% (Loss) |
| 1:1.5 | 40% | Need 4 wins to break even | 0% (Breakeven) |
| 1:2 | 33% | Need 3.3 wins to break even | +20% (Profit) |
| 1:3 | 25% | Need 2.5 wins to break even | +60% (Profit) |
| 1:4 | 20% | Need 2 wins to break even | +100% (Profit) |
*Assuming 1% risk per trade. Actual results depend on consistent execution and market conditions.
Always determine your stop loss based on market structure and analysis, not to fit a desired risk-reward ratio.
Set profit targets at logical levels like resistance, support, or Fibonacci levels, not arbitrary distances.
Moving stop loss further away destroys your risk-reward plan and indicates poor trade management or entry timing.
Spreads and commissions reduce your actual risk-reward. A 1:2 setup might be 1:1.8 after costs.
Keep a journal comparing your planned risk-reward to actual results. This reveals execution issues.
Taking partial profits at 1:1 or 1:1.5 can improve win rate while maintaining good overall risk-reward.
Accept Lower Win Rates: With a good risk-reward ratio (1:2 or better), you can be profitable with a 35-40% win rate. This means accepting more losses than wins, which challenges most traders psychologically.
Avoid the Breakeven Trap: Moving your stop to breakeven too early can hurt profitability. Let trades breathe and follow your original plan unless market conditions fundamentally change.
Quality Over Quantity: Focus on high-quality setups with favorable risk-reward rather than taking many trades with poor ratios. Patience pays in the long run.
Trust the Math: A string of losses doesn't mean your strategy is broken. With proper risk-reward, you need fewer wins to recover and profit.
A minimum of 1:1.5 is recommended for most strategies. Professional traders often target 1:2 or higher. The ideal ratio depends on your win rate and trading style.
Higher risk-reward ratios mean you need a lower win rate to be profitable. A 1:3 ratio requires only 25% win rate to break even, while 1:1 needs 50%.
Trading costs reduce your actual risk-reward ratio. A theoretical 1:2 setup might become 1:1.8 after accounting for spreads and commissions.
Yes. First determine the risk-reward ratio to assess trade quality, then calculate position size based on your risk percentage per trade.
Slippage, spreads widening, and partial fills can affect actual ratios. Always account for these factors when planning trades.
Never widen stops just to improve the ratio. Stop loss should be based on market structure and your analysis, not arbitrary ratio targets.
The minimum percentage of winning trades needed to avoid losses. Calculated as 1 ÷ (1 + risk-reward ratio). Higher R:R means lower required win rate.
Keep a trading journal recording planned vs actual R:R for each trade. Review regularly to identify if you're achieving your targets.
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