- How do you calculate risk reward ratio?
- Divide the distance from entry to target by the distance from entry to stop. Entry 100, stop 95, target 115: the target is 15 away and the stop 5, so the ratio is 3 to 1. The stop sets what you can lose, the target what you hope to make.
- What win rate do I need to break even?
- 1 ÷ (1 + ratio). At 1 to 1 you need to win half your trades; at 2 to 1 a third (33.3%); at 3 to 1 a quarter (25%). Fees and slippage push the real figure up a little.
- Is a higher risk reward ratio always better?
- No. A far target is reached less often, so the win rate usually falls as the ratio rises. What matters is the combination: a 1 to 1 trade that wins 60% of the time earns more per trade than a 3 to 1 trade that wins 20%.
- What does R mean?
- R is the amount you risk on one trade, the distance to your stop. A trade that makes twice its stop distance is +2 R and one stopped out is −1 R. Counting results in R lets you compare trades of different sizes.
- How does this differ from the position size calculator?
- This tool judges whether a trade is worth taking: how its reward compares with its risk. The position size calculator then tells you how many units to buy so that the stop costs a chosen share of your account.
