Risk / Reward Ratio Calculator

How the calculation works

The calculator measures planned downside versus planned upside from the same entry. Risk per unit is the absolute distance from entry to stop; reward per unit is the absolute distance from entry to take-profit. Dividing reward by risk yields the risk/reward ratio (often written R:R). A ratio of 3 means you stand to make three dollars of planned profit for each dollar of planned loss on that setup.

Formula & example

R:R = |take profit − entry| ÷ |entry − stop|

Entry $100, stop $95 (risk $5), target $115 (reward $15) → R:R = 15 ÷ 5 = 3.0 (1:3).

Why use this calculator

Win rate without payoff shape is incomplete. Many strategies with modest win rates still work because winners are larger than losers; the reverse is also true. R:R makes that trade-off visible before emotions fill the blanks.

When to use it

Use it while sketching a trade: once entry, stop, and target are defined, check whether the payoff shape justifies taking the risk — before size is chosen.

Background

Expressing trades in “R multiples” (risk units) became common in discretionary trading literature in the 1990s–2000s, notably in work associated with Van Tharp, as a way to compare setups independent of instrument price.

Tips for accurate results

• Measure R:R from planned prices, not hoped-for prices.
• Pair with the expectancy calculator to see if your edge is viable.

FAQ