Compare potential upside against downside and find the win rate needed to be profitable.
A 3:1 reward-to-risk ratio only needs a 25% win rate to break even, which is why ratio and win rate must always be judged together. Expectancy combines them into the single number that decides whether a strategy makes money. Traders optimise win rate and ignore the ratio, which is how a strategy that wins 70% of the time still loses money.
Risk Reward Ratio
Reward:risk = (target − entry) ÷ (entry − stop); break-even win rate = 1 ÷ (1 + reward:risk)
Reward:risk = (target − entry) ÷ (entry − stop); break-even win rate = 1 ÷ (1 + reward:risk) A 3:1 reward-to-risk ratio only needs a 25% win rate to break even, which is why ratio and win rate must always be judged together. Expectancy combines them into the single number that decides whether a strategy makes money.
Traders optimise win rate and ignore the ratio, which is how a strategy that wins 70% of the time still loses money.
This calculator takes 4 inputs: Entry price, Target price, Stop-loss price, Expected win rate. The pre-filled defaults are a realistic starting point — replace them with figures from your own environment for a result you can act on.