What risk/reward actually tells you
Risk/reward compares the distance to your stop (what you lose if you're wrong) with the distance to your target (what you make if you're right). A trade risking PKR 4 to make PKR 10 is a 1 : 2.5 trade.
On its own the ratio doesn't say whether a trade is good. What it does tell you is how often you need to be right. That's the part people skip — and it's why the calculator shows the break-even win rate right next to the ratio.
A worked example
A stock is trading at PKR 80. You'd get out at PKR 76 if it turns against you, and you think PKR 90is reachable — say it's near the last swing high.
- Risk: 80 − 76 = PKR 4 a share (5% below entry).
- Reward: 90 − 80 = PKR 10 a share (12.5% above entry).
- Ratio: 10 ÷ 4 = 1 : 2.5.
- Break-even win rate: 1 ÷ (1 + 2.5) = 28.6%.
In other words, if roughly 3 out of every 10 trades like this reach the target and the rest hit the stop, you'd about break even before costs. At 4 out of 10 you'd average +0.4R a trade. That's the comfort a good ratio buys you: room to be wrong more often than you're right.
The trade-off nobody mentions
Ratio and win rate pull against each other. Move the target further away and the ratio improves, but price reaches it less often. Tighten the stop and the ratio improves too, but ordinary day-to-day wobbles will knock you out more often. Neither tweak is free.
So rather than chasing the biggest ratio, set the stop where the idea is genuinely proven wrong (the stop-loss calculatorcan help), set the target where price can realistically go, and then see whether the ratio is worth it. If it isn't, the honest answer is often to wait for a better entry.
From one trade to a strategy
One trade's ratio is a plan. Your average win and loss over many trades is the reality. Once you have a few dozen trades recorded, put your real numbers into the expectancy calculator to see whether the strategy as a whole makes money — and how long a losing streak to expect along the way.
Frequently asked questions
What is a good risk/reward ratio?
It depends on how often your setups work. A 1:2 ratio only needs a win rate above about 33% to break even, so it's a popular minimum. A 1:1 trade needs you to be right more than half the time. Ratios like 1:5 look great, but targets that far away are hit less often. The useful question is whether the ratio and your realistic win rate together come out positive — the table under the result shows exactly that.
How is the break-even win rate calculated?
Break-even win rate = 1 ÷ (1 + reward/risk). For a 1:2.5 trade that's 1 ÷ 3.5 ≈ 28.6%. Win more often than that, with the same sizes, and the trades add up to a profit before costs.
Should I just move my target further away to improve the ratio?
Only if the chart supports it. Pushing a target past an obvious resistance level makes the ratio look better on paper but makes the target less likely to be reached, which lowers your real win rate. A good target is somewhere price can plausibly get to, not a number that makes the maths look nice.
Does this include brokerage fees and taxes?
No — it compares price distances only, which is how traders usually quote risk/reward. Fees shave a little off every trade, so a ratio that only just clears break-even may not survive them. The position size and average cost calculators let you add fees.
What does 'R' mean in the table?
R is the amount you risk on a trade. If you risk PKR 4 a share, 1R is PKR 4. A trade that makes PKR 10 is +2.5R; one stopped out is −1R. Measuring in R lets you compare trades of different sizes and prices on equal terms.
Can I use it for a short trade?
Yes. Put the stop above the entry and the target below it, and the calculator treats it as a short.
These calculators do arithmetic on the numbers you type in. They're for learning and planning, not investment advice, and they don't tell you what to buy or sell. Nothing you enter leaves your browser. See the terms & risk disclaimer.