Risk-Reward Calculator

Risk-Reward Ratio — The Foundation of Profitable Trading

Every trade you take has two possible outcomes: it hits your target, or it hits your stop loss. Risk-reward ratio simply measures the relationship between those two numbers. A 1:2 ratio means for every rupee you risk, you expect to make two rupees if you are right.

The minimum acceptable ratio for most trading strategies is 1:2. Below that, your win rate needs to be exceptionally high to stay profitable. Most traders cannot sustain win rates above 60-65% consistently, which means the math of sub-1:2 trades works against you over time.

Calculating it is simple. Entry at ₹200, stop loss at ₹190, target at ₹220. Risk = ₹200 − ₹190 = ₹10. Reward = ₹220 − ₹200 = ₹20. R:R = 1:2. Nothing complex here, but most traders skip this step entirely.

Expectancy — The Number That Really Predicts Your P&L

R:R ratio alone tells you nothing about profitability. A system with 1:3 R:R but 30% win rate is less profitable than a 1:1.5 system with 65% win rate. You need expectancy — the average rupee made or lost per trade.

Example: Win rate 40%, average win ₹3,000 (1:3 R:R, risking ₹1,000), average loss ₹1,000.

Expectancy = (0.40 × ₹3,000) − (0.60 × ₹1,000) = ₹1,200 − ₹600 = ₹600 per trade.

That ₹600 positive expectancy means over 100 trades, you expect to make ₹60,000 in profit despite losing 60 of those trades. This is the mathematics behind why 1:3 R:R with 40% win rate is a profitable system.

Win Rate vs. R:R — The Profitable Combinations

The table below shows minimum win rates required to break even at different reward-to-risk ratios. Any win rate above the breakeven threshold generates profit over a large sample of trades.

Why High R:R Setups Are Harder to Find Than They Sound

A 1:4 R:R setup sounds amazing in theory. In practice, markets rarely give you a clean run to a target 4x your stop away. Price hits resistance, consolidates, reverses. Your position gets stopped out on the second attempt. The actual realized R:R on most trades is lower than the planned R:R.

This is the argument for trailing stop losses and partial profit booking. If you target 1:3 but take half your position off at 1:1.5 and trail the rest, your blended exit is often better than holding for the full target and watching profits evaporate.

Tracking realized R:R — not planned R:R — in your trade journal is the only way to know if your strategy works in practice. Many traders show 1:3 planned R:R but 0.8:1 realized R:R because they move stops, exit early, and let losses run. The journal catches that dishonesty.

Building a Trade Journal Around R:R

Every trade entry should record: entry price, stop loss price, target price, planned R:R, position size, and reason for the trade. On exit, record: exit price, realized profit/loss, realized R:R, and what went right or wrong.

After 30+ trades, you will see patterns. Your 1:2 trend-following trades on breakout might show 55% win rate. Your 1:3 counter-trend trades might show 30% win rate. The expectancy of each is similar, but knowing which setup works best in which market condition is where edge gets refined.

Free options: a simple Google Sheet with those fields is sufficient. Tools like Zerodha's Console, Sensibull, or TraderSync pull trades automatically. The tool does not matter. The discipline of reviewing every trade, every week, does.