Risk-Reward / Profit Target Calculator

Understanding Risk-Reward Ratio & Profit Targets

The risk-reward ratio (R:R) is one of the most important concepts in trading. It compares the potential profit of a trade to the potential loss. A favorable risk-reward ratio is essential for long-term profitability. This calculator helps you determine exact profit target prices based on your entry, stop loss, and desired R:R ratio.

What is Risk-Reward Ratio?

Risk-reward ratio measures how much you stand to gain compared to what you're risking on a trade. For example:

Why Risk-Reward Matters

• Profitability: A good R:R ratio means you can be profitable even with a win rate below 50%
• Risk Management: Helps you set realistic profit targets before entering trades
• Discipline: Removes emotion by defining exit points in advance
• Strategy Validation: Tests if your trading strategy has mathematical edge
• Professional Approach: Separates systematic traders from gamblers

Recommended Risk-Reward Ratios

• 1:1 Ratio: Break-even with 50% win rate - minimum acceptable
• 1:2 Ratio: Profitable with 33.3% win rate - recommended for most traders
• 1:3 Ratio: Profitable with 25% win rate - excellent for swing trading
• 1:4+ Ratio: Profitable with 20% win rate - requires patience and discipline

How to Use This Calculator

1. Select your preferred currency using the toggle above ($ USD or ₹ INR)
2. Enter your planned entry price
3. Enter your stop loss price (where you'll exit if wrong)
4. Choose your desired risk-reward ratio (commonly 2:1 or 3:1)
5. Calculator shows multiple profit targets automatically (1:1, 1:2, 1:3, and your custom ratio)
6. Use these targets to place limit orders or plan exits

Currency Support

This calculator supports both US Dollars ($) and Indian Rupees (₹). Simply toggle between currencies using the switch above. Your preference is saved locally and will be remembered across all calculator pages on this site.

Setting Profit Targets

• Use market structure: Place targets at logical support/resistance levels, not arbitrary prices
• Multiple targets: Take partial profits at 1:1, let remaining position run to 1:2 or 1:3
• Be realistic: Higher R:R ratios are harder to achieve - don't force unrealistic targets
• Consider volatility: More volatile assets can achieve higher R:R ratios
• Time frame matters: Day trades typically use 1:1 or 1:2, swing trades can target 1:3+

Trading Tips

• Always define stop loss first: Know your risk before entering any trade
• Be realistic: Don't force trades to fit perfect ratios if market structure doesn't support it
• Consider market structure: Place targets at logical support/resistance levels
• Partial exits strategy: Take some profit at 1:1, let rest run to higher targets
• Track actual results: Monitor your actual achieved R:R vs planned
• Account for costs: Include commissions and slippage in your calculations

Common Mistakes to Avoid

• Setting unrealistic profit targets just to achieve high R:R ratios
• Moving stop loss after entry (invalidates the entire risk-reward calculation)
• Ignoring market conditions, volatility, and price structure
• Not considering commissions, spreads, and slippage
• Focusing only on R:R without considering win rate probability
• Using the same R:R ratio for all trades regardless of setup quality
• Not adjusting targets based on time frame (day trading vs swing trading)

Risk-Reward and Win Rate Relationship

Understanding how R:R ratio and win rate work together is crucial:

• 1:1 R:R needs 50% win rate to break even
• 1:2 R:R needs 33.3% win rate to break even
• 1:3 R:R needs 25% win rate to break even
• 1:4 R:R needs 20% win rate to break even

Use our Profitability Calculator to analyze if your strategy's combination of win rate and R:R ratio is actually profitable.

Advanced Strategy: Scaling Out

Professional traders often use a scaling-out strategy:

Remember: Risk-reward ratio is meaningless without proper position sizing and risk management. Always risk only 1-2% of your account per trade, regardless of the R:R ratio.