Risk Reward Ratio Calculator, Break-Even Win Rate

Risk is the distance from your entry to your stop. Reward is the distance from your entry to your target. The risk-reward ratio is one divided by the other, and it is easiest to read when the risk is the unit: a trade that risks 25 pips to make 50 has a reward of 2R, written 1:2.

1. 01

   Risk = entry − stop for a long, or stop − entry for a short.

2. 02

   Reward = target − entry for a long, or entry − target for a short.

3. 03

   Reward in R = reward ÷ risk.

A long on EURUSD at 1.0850 with a stop at 1.0825 and a target at 1.0900 risks 25 pips to make 50: 2R. A short on gold at 2,400.00 with a stop at 2,408.00 and a target at 2,376.00 risks $8 to make $24: 3R.

R

The risk on one trade, used as the unit of result. Hitting the stop is −1R; reaching a target twice as far is +2R.

Win rate

The share of closed trades that ended in profit. Break-even trades are counted separately, or the rate looks better than it is.

Break-even win rate

The win rate at which a given ratio neither makes nor loses money over many trades.

Expectancy

The average result of one trade, in R, over many trades. Positive expectancy is the only kind that pays over time.

Enter the entry, the stop and the target. The calculator reads the direction from where the stop sits, gives the reward in R and the win rate that ratio needs to break even, before and after costs. Add your win rate to see the expectancy of one trade in R.

It opens on the EURUSD example above: 25 pips of risk, 50 pips of reward, 2R, a 33.3% break-even line, 36.7% with a 0.1R cost, and +0.20R of expectancy at a 40% win rate before costs. Costs are entered as a share of the risk: a $7 round trip on $100 of risk is 0.07R.

A target twice as far away is reached less often. A target ten times as far away is reached far less often. Any ratio can be written on a chart; the question is how often price actually gets there before it gets to the stop.

That is why a 1:3 trade is not better than a 1:1 trade by definition. It is better only if it wins often enough. The ratio and the win rate are two halves of one number, and you need both before you can judge either.

Over many trades, wins of R and losses of 1 cancel out when the win rate is 1 ÷ (1 + R). Below that rate the method loses money; above it, it makes money, before costs.

Check it with ten trades at 2R. Four wins and six losses make 4 × 2 − 6 × 1 = +2R. Three wins and seven losses make 3 × 2 − 7 × 1 = −1R. The break-even line, 33.3%, sits between them.

Expectancy combines the two numbers into one: expectancy = win rate × average win − loss rate × average loss, in R. With losses at exactly 1R, it is p × R − (1 − p).

The last row is the trap of a high win rate. Winning 65% of trades feels like skill, but with wins half the size of the losses the method slowly loses money. The first two rows reach the same result in opposite ways: one wins more often, the other wins bigger.

Expectancy is an average over many trades. A small sample is noisy: ten or twenty trades can show almost any win rate by chance. Judge a method on a large sample of trades taken the same way, and keep adding to it.

Spread, commission and slippage are paid on every trade, win or lose. Expressed in R, a cost c turns the break-even win rate into (1 + c) ÷ (1 + R).

To find c, divide the cost of one trade by its risk. A $7 round trip on $100 of risk is 0.07R. The same $7 on a $25 risk is 0.28R. Costs weigh most on tight stops and small targets, which is why scalping methods need a high win rate just to stand still.

The ratio you plan is not the ratio you get. Partial exits, a stop moved to break-even, an early exit on a feeling and slippage all change the result. What matters is the realised average win and the realised average loss.

1. 01

   Take your last fifty closed trades, or as many as you have, all from one method.

2. 02

   Write each result in R: the profit or loss divided by the planned risk.

3. 03

   Average the winners, average the losers, and count the win rate.

4. 04

   Work out the expectancy from those three numbers, and the break-even rate for your realised average win.

5. 05

   Compare the realised average win with the planned one. A large gap means you exit winners early.

Place the target where the market gives a reason to expect it: the next level, a previous high or low, the edge of a range. Then read the ratio. If the honest target gives only 1R, the trade is a 1R trade, and it needs a win rate above 50% to pay.

Use a minimum ratio as a filter, not as a way to draw targets. A rule such as "no trade below 1.5R" removes trades. Moving a target further out to pass the rule only changes the number on the chart, not the market.

Four fields, written before the entry and at the close:

• Planned risk, planned target and the planned reward in R, before the entry.
• The probability you give the trade, if you rate your setups.
• The realised result in R, and the costs paid.
• How the trade was closed: stop, target, moved stop or manual exit.

If you rate setups by probability, compare the rating with the break-even line for the planned ratio. A 2R setup you rate at 30% sits below its 33.3% line, so on your own estimate it does not pay. In Navrya, each scenario carries a probability from 0 to 100 next to its trade plan, so both numbers sit on the same record.

Six mistakes account for most misreadings of these numbers:

• Judging a method by its win rate alone, or by its ratio alone.
• Stretching a target to pass a minimum-ratio rule.
• Counting break-even trades as wins.
• Ignoring costs on tight stops.
• Drawing conclusions from ten or twenty trades.
• Planning 3R and taking profit at 1R by habit, then wondering why the method stopped working.

• How to calculate position sizeHow to turn 1R into a size for forex, gold, stocks and crypto.
• Revenge tradingWhat happens to R when the trade after a loss is taken to win it back.
• How to review a trading journalA weekly routine for reading these numbers.
• What an AI trading journal recordsHow Navrya keeps scenarios, probabilities and trade plans together.
• Trading Journal GuideSetting up, logging a trade and reviewing it.