Risk/reward calculator
Compare what a trade can lose with what it can make before you take it. Enter an entry, a stop and a target below.
The formula
- Risk = entry price − stop price
- Reward = target price − entry price
- Risk/reward ratio = reward ÷ risk
- Break-even win rate = 1 ÷ (1 + ratio)
A worked example
You buy at $100 with a stop at $95 and a target at $112. Risk is $5 a share and reward is $12, so the ratio is 12 ÷ 5 = 2.4, often written 2.4R. The break-even win rate is 1 ÷ (1 + 2.4), about 29%. If setups like this work more than about three times in ten, they make money over many trades, before costs.
Why the ratio alone is not enough
A 5R target that price almost never reaches is worse than a 1.5R target it reaches often. The ratio only means something next to an honest estimate of how often the target gets hit, which is exactly what practice on real charts helps you learn.
Setting a realistic target
Look left on the chart. The nearest resistance level, a previous high or a round number is where sellers have shown up before. A target beyond that needs a reason.
What this calculator does not include
Fees, spreads and slippage, which all shrink the reward and grow the risk a little. For small targets they can change the answer.
Related
One Candle Ahead is an educational practice game with virtual money. It does not provide financial advice, investment recommendations, brokerage, real-money trading, or guaranteed results.