A trade with a bad risk-reward ratio is a trade you skip. Enter your entry, stop, and target below and the calculator returns the ratio, your dollar risk and reward, and the win rate you need to break even at that ratio. It runs in your browser, it’s free, and there’s no signup wall.
How to use it
- Pick long or short, then enter your planned entry price and share size.
- Enter your stop. Put it where the setup is invalid (under the level you’re trading off for longs, above it for shorts), not where it produces a pretty ratio. Moving the stop to manufacture a 1:3 is the most common way traders lie to themselves.
- Enter your target, based on a real level: prior high of day, VWAP, a daily level, the next round number. The calculator does the rest.
Read the output before you read the chart again. If the ratio is below your minimum, the trade doesn’t happen. That’s the whole point of running the numbers first.
A worked example
You’re long 300 shares of a gapper at $14.50. The stop goes under the consolidation low at $14.20, and the target is the premarket high at $15.25.
- Risk per share: $14.50 minus $14.20 = $0.30. Total risk: $90.
- Reward per share: $15.25 minus $14.50 = $0.75. Total reward: $225.
- Ratio: 0.75 divided by 0.30 = 2.5, written as 1:2.5 (you risk $1 to make $2.50).
- Break-even win rate: 1 divided by 3.5 = 28.6%.
So this setup only needs to work roughly 3 times in 10 to keep you at break-even, before commissions. Win it 4 times in 10 and you’re solidly profitable. That margin for error is what a good ratio buys you.
Note what the ratio doesn’t tell you: how many shares to take. That’s a separate calculation based on your account and max loss per trade, and it lives in our position size calculator. Run both. The ratio decides whether the trade is worth taking; position size decides how big.
The formula
Risk-reward ratio = (target price minus entry) divided by (entry minus stop price), with the two flipped for shorts. The ratio is written risk first: 1:2 means each dollar risked targets two dollars of reward.
The number that makes the ratio useful is the break-even win rate:
Break-even win rate = 1 divided by (1 + ratio)
At 1:2 that’s 33.3%. At 1:3 it’s 25%. The table below covers the common range.
| Ratio (risk : reward) | Break-even win rate | In plain terms |
|---|---|---|
| 1:1 | 50.0% | You must win more than half your trades |
| 1:1.5 | 40.0% | Four wins in ten keeps you at break-even |
| 1:2 | 33.3% | Wrong twice for every win and you still survive |
| 1:2.5 | 28.6% | Real margin for error starts here |
| 1:3 | 25.0% | One winner pays for three stops |
| 1:4 | 20.0% | One in five; typical for bigger swing targets |
| 1:5 | 16.7% | Rare intraday; usually a multi-day hold |
You can also run it backwards. If you know your win rate from your journal, the minimum ratio you need is (1 minus win rate) divided by win rate. A 45% win rate needs at least 1:1.22 to break even. A 60% win rate breaks even at 1:0.67, which is why some scalpers survive on ratios that would bury a momentum trader. Neither number means anything without the other.
Here’s what that looks like over 100 trades. Say you risk $90 a trade at a planned 1:2.5 and win 40% of the time: 40 winners pay $225 each ($9,000), 60 losers cost $90 each ($5,400). Net: $3,600 before commissions, from a strategy that’s wrong more often than it’s right. That’s the entire argument for taking only well-priced trades, compressed into one subtraction. New to this layer of the game? Start with how to start day trading before putting money behind it.
Why your realized ratio will be worse than your planned one
The calculator prices a plan. The market fills orders. On thin, fast names the gap between the two is real money, and no ratio on a screen accounts for it until you do.
Take the worked example above. The stop sits at $14.20, but the stock flushes through it and you get filled at $14.16: four cents of slippage turns $0.30 of risk into $0.34. At the top, you sell into strength a nickel early at $15.20, so the reward is $0.70, not $0.75. Your planned 1:2.5 just became a realized 1:2.06. Same trade, same plan, 18% less edge. Add the spread on entry and a per-share commission and it shrinks again.
Two practical rules follow. First, on low-float movers, plan the trade at a worse ratio than the chart shows; if it only works at exactly 1:2, it doesn’t work. Second, track planned versus realized R on every trade in the free trading journal template. If your realized numbers run consistently below plan, the leak is execution, not strategy, and you can’t fix what you don’t measure. A gap-and-go entry on a stock trading 40 million shares slips less than the same entry on one trading 2 million; how the setup itself prices risk is covered in the gap and go strategy breakdown.
One more thing the ratio can’t do: save a bad win rate. A string of 1:3 setups that never hit the target is still a losing account, and most day traders lose money for exactly that kind of reason. The ratio is a filter, not an edge.
Get the journal template
The fastest way to find your real win rate and realized R is to log every trade for a month. The trading journal template is free.
Frequently asked questions
What is a good risk-reward ratio for day trading?
1:2 is the common minimum: the reward is at least twice the risk, so a 33.3% win rate keeps you at break-even. Many traders hold out for 1:2.5 or 1:3 on their best setups. High win-rate scalping can justify less, but below 1:1.5 the math demands a win rate most traders can’t sustain.
How do you calculate the risk-reward ratio?
Divide the distance from entry to target by the distance from entry to stop. Buy at $20 with a stop at $19.50 and a target at $21.50, and you’re risking $0.50 to make $1.50, a 1:3 ratio. Multiply each distance by your share count to see the dollar amounts.
Is a 1:1 risk-reward ratio profitable?
Only if you win more than half your trades after costs. At 1:1 the break-even win rate is exactly 50%, and commissions plus slippage push the real requirement higher. It can work for high win-rate scalping; for most setups it leaves no room to be wrong.
Does a high risk-reward ratio guarantee a profitable trade?
No. The ratio says nothing about the odds of the target being hit. A 1:5 setup that almost never reaches its target loses money, and stretching the target just to inflate the ratio replaces analysis with hope. Set the target at a level price actually respects, then accept whatever ratio the chart gives you, or pass.
Why is my actual ratio worse than the one I planned?
Slippage, spread, and early exits. Stops fill below the stop price on fast flushes, the spread costs you on entry, and selling before the target trims the reward side. A few cents on each end can turn a planned 1:2.5 into a realized 1:2. Track planned versus realized R in a journal to see how big your gap is.