Reward/Risk Calculator: Assess Your Trade Potential
In trading, understanding the potential reward and risk of each trade is crucial. Our Reward/Risk Calculator allows you to evaluate your trade setups by calculating the reward-to-risk ratio, potential profit, and loss. This tool helps traders make informed decisions, manage risk effectively, and enhance trading strategies.
🛠️ How to Use the Calculator
Select Calculation Mode:
Choose between:
Reward/Risk Ratio: Input entry price, stop loss, and profit target to calculate the ratio.
Entry Price: Given profit target, stop loss, and desired ratio, determine the entry price.
Profit Target: With entry price, stop loss, and desired ratio, calculate the profit target.
Input Trade Details:
Enter the appropriate values based on your selected mode.
Calculate:
Click the “Calculate” button to view results.
Interpret Results:
Reward/Risk Ratio: Indicates the potential profit relative to the risk.
Potential Gain/Loss: Shows the estimated profit or loss per trade.
Required Win Rate: The minimum percentage of winning trades needed to be profitable.
📊 Example Scenarios
Scenario 1: Standard Trade Setup
- Entry Price: $100
- Stop Loss: $90
- Profit Target: $120
- Reward/Risk Ratio: 2.0
- Required Win Rate: 33%
Scenario 2: Conservative Trade Setup
- Entry Price: $50
- Stop Loss: $48
- Profit Target: $55
- Reward/Risk Ratio: 2.5
- Required Win Rate: 29%
❓ Frequently Asked Questions (FAQ)
What is a risk-reward ratio in trading?
The risk-reward ratio compares the potential loss (risk) of a trade to the potential profit (reward). For example, a 1:3 risk-reward ratio means risking $100 to potentially make $300. Traders use this ratio to evaluate if a trade is worth taking.
How do you calculate risk-reward ratio?
To calculate the risk-reward ratio:
Formula:
Risk-Reward Ratio = (Potential Loss) ÷ (Potential Profit)Example:
If your stop loss is $2 below the entry price and your target profit is $6 above the entry, the ratio is $2 ÷ $6 = 1:3.
Our Reward/Risk Calculator does this instantly for any trade.
What is a good risk-reward ratio for day trading?
A common guideline is at least 1:2 or higher, meaning you aim to earn twice the amount you risk. Many professional traders prefer 1:3 or more, as it allows profitability even if some trades lose. The best ratio depends on your strategy, win rate, and risk tolerance.
How do you calculate reward-to-risk ratio?
Reward-to-risk is the inverse of risk-reward.
Formula:
Reward-to-Risk Ratio = (Potential Profit) ÷ (Potential Loss)Example:
If you risk $100 for a potential $300 profit, your reward-to-risk ratio is 3:1.
Our calculator can show both ratios automatically.
What is a 2:1 risk-reward ratio?
A 2:1 ratio means you are risking $1 to potentially make $2. For instance, risking $100 with a target of $200 profit gives a 2:1 ratio. Many traders consider this the minimum acceptable ratio for consistent profitability.
How do you use risk-reward ratio in trading?
Traders use the risk-reward ratio to decide if a trade is worth entering. A higher ratio means you can afford more losing trades and still remain profitable. For example, with a 1:3 ratio, even if only 40% of trades win, you can still grow your account.
What is a 1:3 risk-reward ratio?
A 1:3 risk-reward ratio means you risk $1 to potentially make $3. For example, risking $50 with a potential $150 reward. This is a favorable ratio because it allows profitability even with a lower win rate.
What is a 1:1 risk-reward ratio?
A 1:1 ratio means you risk the same amount as your potential profit. For example, risking $100 for a $100 reward. While simple, it requires a high win rate to be profitable long-term, so many traders prefer higher ratios.
How do you calculate risk-reward ratio for forex?
In forex, risk-reward is calculated using pips:
Formula:
Risk-Reward Ratio = Stop Loss (pips) ÷ Take Profit (pips)Example:
If you risk 20 pips with a 60-pip profit target, your ratio is 1:3.
Our Forex Risk/Reward Calculator makes this easy by handling pips and lot sizes automatically.
What is a good risk-reward ratio for swing trading?
Swing traders often aim for higher ratios like 1:3 or 1:4 since trades last longer and profit targets are larger. This allows swing traders to risk small amounts on each trade while capturing bigger moves in the market.
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