What Is Risk/Reward Ratio?
The Risk/Reward ratio (or R:R) measures the expected returns of a given trade relative to the amount of risk taken. A 1:2 Risk/Reward ratio means that for every $1 you risk losing, you expect to make $2 in profit.
Why Risk/Reward Matters
Having a strong Risk/Reward ratio allows you to be profitable even if you lose more trades than you win. For instance, if you strictly take trades with a 1:3 ratio, you only need to win 25% of your trades to break even.
The Math Behind R:R
- Risk = Absolute distance between Entry Price and Stop Loss
- Reward = Absolute distance between Entry Price and Take Profit
- Ratio = Reward ÷ Risk
Multiple Take Profits
This calculator allows you to enter up to three Take Profit levels. When scaling out of a position, your overall Risk/Reward ratio changes. While TP3 might offer a 1:5 ratio, your composite or blended ratio will be lower if you take partial profits at TP1 and TP2.