Risk-reward ratio calculator
The risk-reward ratio compares what you could lose with what you could gain on one trade. Risk is entry minus stop-loss; reward is target minus entry. Buy at ₹500 with a stop at ₹480 and a target at ₹540, and you risk ₹20 to make ₹40: a ratio of 1 : 2.
| If you win | Average result a trade |
|---|---|
| 30% of trades | −0.10R (−₹200) |
| 40% of trades | +0.20R (+₹400) |
| 50% of trades | +0.50R (+₹1,000) |
| 60% of trades | +0.80R (+₹1,600) |
R = the money you risk on one trade. Maths only, before charges and slippage — not a forecast.
- 1Move the target closer. Watch the win rate you need climb.
- 2Try 1 : 1, 1 : 2 and 1 : 3. Which one forgives more losing trades?
- 3Keep the target, tighten the stop — then check it isn't inside normal daily noise.
How to read the result
- The ratio — reward per share divided by risk per share, written 1 : 2, 1 : 3 and so on.
- The break-even win rate — 1 ÷ (1 + ratio). At 1 : 2 you need to win more than a third of such trades to break even, before charges.
- Rupees at stake — total risk and total reward for the number of shares you enter.
- The table — the average result per trade at different win rates, in R (one unit of the risk you took).
Why 1 : 2 is a common minimum
The bigger the reward compared with the risk, the more often you can be wrong and still break even.
| Risk : reward | Win rate needed to break even |
|---|---|
| 1 : 1 | 50% |
| 1 : 1.5 | 40% |
| 1 : 2 | 33% |
| 1 : 3 | 25% |
But a target further away is reached less often. The ratio only means something when the target sits at a real level — a previous high, resistance or a supply zone — not wherever makes the number look good.
A worked example in rupees
- Entry
- ₹800
- Stop-loss
- ₹776 (₹24 a share)
- Target
- ₹860 (₹60 a share)
- Ratio
- ₹60 ÷ ₹24 = 2.5, so 1 : 2.5
- Shares
- 125 (₹3,000 at risk)
You risk ₹3,000 to make about ₹7,500 before charges. You'd need to win more than about 29% of trades like this to break even.
Work out the shares first with the position size calculator, then come back here to check the trade is worth it.
The formulas behind the calculator
- Risk per share = entry − stop-loss.
- Reward per share = target − entry.
- Ratio = reward per share ÷ risk per share. A result of 2 is written 1 : 2.
- Break-even win rate = 1 ÷ (1 + ratio). At 1 : 2 that's 1 ÷ 3, about 33%.
- Expectancy per trade, in R = (win rate × ratio) − (loss rate × 1).
For a short trade, flip the first two: risk is stop-loss − entry and reward is entry − target. The rest is the same.
Everything is per share first. Multiply by your number of shares to see rupees. That's why the ratio stays the same whether you buy 10 shares or 1,000 — only the rupees change.
Ratio and win rate work together
A ratio on its own tells you nothing about results. You need it alongside how often trades like it actually reach the target. The table below is plain arithmetic for practice — it isn't a promise about any strategy.
| Ratio | Win rate | Average result per trade |
|---|---|---|
| 1 : 1 | 50% | 0R (break-even, before charges) |
| 1 : 2 | 30% | −0.1R |
| 1 : 2 | 40% | +0.2R |
| 1 : 3 | 25% | 0R (break-even, before charges) |
| 1 : 3 | 35% | +0.4R |
Two things stand out. A good ratio with too few winners still loses. And a small edge of +0.2R only shows up over many trades, so judge your process on twenty or thirty trades, not the last two.
You learn your own win rate by keeping a journal: entry, stop, target, the result in R, and a line on why you took it.
Two more examples: one to take, one to skip
- Entry
- ₹412, on a bounce from a demand zone
- Stop-loss
- ₹398, under the zone (₹14 a share)
- Nearest resistance
- ₹445 (₹33 a share)
- Ratio
- ₹33 ÷ ₹14 ≈ 2.4, so about 1 : 2.4
The first real level is far enough away to give more than 1 : 2. The trade passes this check — the chart still has to agree.
- Entry
- ₹1,060
- Stop-loss
- ₹1,030 (₹30 a share)
- Nearest resistance
- ₹1,085 (₹25 a share)
- Ratio
- ₹25 ÷ ₹30 ≈ 0.8, so about 1 : 0.8
Sellers sit just above. Moving the target to ₹1,150 would make the number look better, but it would mean betting the stock breaks through a level it hasn't cleared. Skipping is a valid decision.
Charges shrink small targets
Charges are roughly a fixed cost per trade, so they bite harder when the move is small. A trade aiming for ₹5 a share on a ₹500 stock gives up a bigger slice to charges than one aiming for ₹40.
Before you take a trade with a small target, compare the reward in rupees with the round-trip charges from your broker's calculator for your order size. If charges eat a large part of the reward, the real ratio is worse than the calculator shows.
Common risk-reward mistakes
- Picking the target first and working backwards to a stop. The stop belongs where the idea is wrong; see setting a stop-loss.
- Tightening the stop to improve the ratio. A stop inside normal daily movement gets hit by noise.
- Ignoring the level in the way. A 1 : 3 target with resistance halfway is really a 1 : 1.5 trade.
- Moving the target further once the trade is working, then giving back the gain.
- Judging a ratio on one trade. A 1 : 3 trade that loses wasn't wrong; one that wins wasn't proof.
A quick pre-trade check
- 1Mark the stop where the idea fails, under a swing low or demand zone.
- 2Mark the first real target: the nearest swing high, resistance or supply zone.
- 3Enter both here and read the ratio. Below about 1 : 2, think twice.
- 4Check the rupees at risk match your plan — usually 1% of capital or less.
- 5Compare the reward with your charges, especially on small trades.
- 6Write the entry, stop, target and ratio in your journal before you place the order.
Where targets come from
Look left on the chart. The nearest place where sellers appeared before — a swing high, a resistance level or a supply zone — is a realistic first target. If that level is too close to give at least 1 : 2, the honest answer is often to skip the trade.
Never move the stop closer just to improve the ratio. A stop inside normal daily movement gets hit by noise, and the ratio on paper never happens.
Quick check
Key terms
- Risk-reward ratio
- Reward per share divided by risk per share, written as 1 : something.
- R
- One unit of the money you risk on a trade. A +2R trade made twice what it risked.
- Break-even win rate
- The share of trades you must win to neither make nor lose money at a given ratio: 1 ÷ (1 + ratio).
- Expectancy
- The average result per trade over many trades, from your win rate and your ratio.
Common questions
What is a good risk-reward ratio for swing trading?
Many swing traders look for at least 1 : 2, so they can be wrong more often than right and still come out ahead. The target still has to be realistic.
How do I calculate the risk-reward ratio?
Divide the reward per share (target minus entry) by the risk per share (entry minus stop-loss). ₹40 ÷ ₹20 = 2, written 1 : 2.
Does a better ratio mean a better trade?
Not on its own. A distant target is reached less often. The ratio, the chance of reaching the target and the size of the trade work together.
Are charges included?
No. Charges and slippage reduce every result a little, which matters most when targets are small.
Is 1 : 3 always better than 1 : 2?
No. A further target is reached less often. A 1 : 2 trade to a clear level can be a better trade than a 1 : 3 trade aimed past resistance. Compare the ratio with how often such trades reach the target in your own journal.
What does R mean in trading?
R is the amount you risk on one trade. If you risk ₹1,000 and make ₹2,500, that trade was +2.5R. Measuring in R lets you compare trades of different sizes.
How do I calculate risk-reward for a short trade?
Flip it: risk is stop-loss minus entry, and reward is entry minus target. Sell at ₹300 with a stop at ₹310 and a target at ₹280, and you risk ₹10 to make ₹20: 1 : 2.
Risk reward ratio kya hota hai?
Ek trade mein aap kitna kho sakte hain aur kitna kama sakte hain, uska anupaat. ₹20 ke risk par ₹40 ka target ho to ratio 1 : 2 hai.
Keep going
Education only — not investment advice. Trading in the stock market carries risk. Charts on this page use made-up prices for practice — they are not real stocks or recommendations. Examples are for learning only.