Open this calculator on its own page
⚖️ Risk/Reward Calculator
Reward to risk is half of an expectancy. The other half is the win rate, and lesson 17 shows a setup winning seven in ten can still lose on every trade.
💡 What Matters
Risk/Reward ratio determines your expectancy. Focus on finding setups with 2:1 minimum R:R.
Why R:R Determines Your Expectancy
Professional traders focus on R:R (Risk/Reward) because it directly controls expectancy. You can be right less often and still be highly profitable if your winners are bigger than your losers.
📊 The Casino Principle
Casinos don't win every hand. They win because when they DO win, they win MORE than they lose. That's R:R.
Real Comparison: Trader A vs Trader B
❌ Trader A: "I take quick profits"
- R:R: 1:1
- 100 trades, 55% success
- 55 wins × $100 = $5,500
- 45 losses × $100 = $4,500
- Net: $1,000
- Expectancy: $10/trade
✓ Trader B: "I let winners run"
- R:R: 1:3
- 100 trades, 35% success
- 35 wins × $300 = $10,500
- 65 losses × $100 = $6,500
- Net: $4,000
- Expectancy: $40/trade
Trader B makes 4X MORE with better R:R ratios, even with fewer winning trades.
Professional R:R Standards
| Setup Type | Minimum R:R | Target R:R |
|---|---|---|
| Scalping | 1.5:1 | 2:1 |
| Day Trading | 2:1 | 3:1 |
| Swing Trading | 2.5:1 | 4:1+ |
| Position Trading | 3:1 | 5:1+ |
⚠️ The Harsh Reality
Most retail traders take 1:1 or worse because:
- They enter too late (already ran 50% of the move)
- They're impatient (target is "too far away")
- They put stops too close (don't want to risk "that much")
Result: Poor expectancy even when they're right often, still losing money after fees.
R:R Mistakes That Kill Accounts
Taking Trades Regardless of R:R
"I really like this setup" ≠ good R:R. Chart looks beautiful but only offers 1:0.8 R:R.
Targeting Round Numbers
Entry $47.20, stop $45.80, target $50.00 because "it's a nice round number."
Risk: $1.40, Reward: $2.80 = 1:2 R:R looks good... but $50 might have massive resistance.
Moving Stops to "Improve" R:R
Entry $100, proper stop $95 (1:3 R:R). But "that's $500 risk!" so move stop to $98 (1:7.5 R:R!).
Problem: Stop is now in the noise. Gets stopped out 90% instead of 40%. "Great" R:R, terrible execution.
Measuring R:R From Current Price (Survivorship Bias)
Entered at $100, now at $105. "From here, my R:R is 1:4!" Wrong. Your R:R is measured from ENTRY.
Professional R:R Strategy
A Ratio Is Half of an Expectancy
A reward-to-risk figure on its own decides nothing. Lesson 24 shows a stop giving the best reward to risk on the page, 9.2 to one, needing a win rate of only 9.8 per cent, and still losing money, because four trades in five never find out whether they were right.
Why the pairing matters: at 2 to 1 you break even at a win rate of 33.3 per cent, before costs. The ratio sets the breakeven; whether you clear it is a separate measurement, and it is the one that takes hundreds of trades.
Partial Profit Taking
Take 50% at 2R, let 50% run to 4R+. This locks in winners while leaving room for home runs.
Actual R:R: (0.5 × 2R) + (0.5 × 4R) = 3R average on winners
Trailing Stops for Asymmetric R:R
Initial target 3:1, but use trailing stop after 2R. Sometimes you catch 10R runners.
This creates positive skew: Losses capped at 1R, wins occasionally 5-10R.
R:R Filters by Timeframe
- Scalping: Minimum 1.5:1 (tight R:R, less room for error)
- Day Trading: Minimum 2:1
- Swing Trading: Minimum 2.5:1
- Position Trading: Minimum 3:1
Longer timeframes = more noise = need better R:R to compensate.
🎯 The ATR-Based Target Method
Professional way to set realistic targets:
- Stop: 1-1.5 ATR below entry
- Target: 2-3 ATR above entry
- Result: Automatic 2:1 to 3:1 R:R based on volatility
See Lesson 21: Where the Stop Goes for more.